Is the world headed for another recession? The OECD has raised the red flag on the global economy, saying international trade this year is expected to fall to levels not seen since the 2009 financial crisis.
The Organisation for Economic Co-operation and Development (OECD) on Monday sounded the alarm on the global economy, saying a slowdown in international trade could point to a new recession for the world’s leading economies.
Stagnation in emerging markets such as China prompted the OECD to lower its 2015 growth forecast for the second time in three months, from 3.0 percent in September to 2.9 percent. That is nearly 1 percentage point lower than the 3.7 percent the organization had projected a year ago, and dangerously close to levels usually associated with global recession.
“This is deeply concerning,” OECD Chief Economist Catherine Mann said in the introduction to the biannual report, which predicted global trade would grow by only 2 percent this year.
“Robust trade and global growth go hand in hand,” Mann said. “World trade has been a bellwether for global output.”
China’s pivot, others’ pain
The Paris-based organization, which is made up of 34 of the world’s most developed countries, placed much of the blame for the downturn on Beijing, where the Chinese leadership is seeking to rebalance its economy from manufacturing and exports to services and consumption. However, aggressive stimulus measures were likely to make up for lost ground, the OECD predicted. As a result, it bumped up its 2015 forecast for China to 6.8 percent from 6.7 percent, and left its outlook for next year untouched at 6.5 percent.
China’s economic pivot has provoked a slump in commodity prices with far-reaching, negative knock-on effects, particularly hurting emerging economies such as Brazil and Russia. The OECD now sees the South American economy shrinking 3.1 percent this year and 1.2 percent in 2016, compared with 2.8 percent and 0.7 percent predicted three months ago.
Russia is expected to fare even worse, according to the report, with GDP headed for a 4-percent drop in 2015 and 0.4 percent next year. The last time the OECD took the temperature on Moscow’s financial health in June, it predicted a contraction of 3.1 percent in 2015 and an expansion of 0.8 percent in 2016.
US rate hike appeal
Despite the bleak outlook, economic recoveries in the United States and the EU gave reason for optimism, the report said.
While growth in the eurozone remained lackluster, the OECD said it was expected to strengthen in the years ahead. Still, it lowered its forecast marginally by 0.1 percentage points for 2015 and 2016 respectively, to 1.5 percent and 1.8 percent.
Meanwhile, growth across the Atlantic should reach 2.4 percent this year and 2.5 percent next year, the authors wrote, down only slightly from their previous estimates of 2.6 percent. Robust economic figures led the OECD to call on the US Federal Reserve to go ahead with its first rate hike since the financial crisis.
“Rate normalisation should…proceed cautiously, while remaining mindful of the risks of waiting too long,” Catherine Mann said. However, she warned, “without wage growth, the recovery will lose steam, and prospects for the US to support the rebound in global trade and growth will come into question.”
pad/hg (AP, AFP, dpa, Reuters)