Potential trade war threatens global economic growth, OECD warns

REUTERS

Mr Pereira said global growth would be led by a recovery in investment, while an increase in trade volumes of 5.2% in 2017 was expected to continue in 2018.

The Paris-based organisation said the world economy was on course to expand at an annual pace of 3.9% over the next two years.

An improved outlook for world economic growth will be placed at severe risk if a trade war results from U.S. metal tariffs, a report has warned.

The global economy will grow close to 4 per cent this year and next, better than previously anticipated, according to the OECD, which added a warning that a trade war could roll back the gains seen in recent years.

The latest round of protectionism was triggered by US steep tariffs on imported steel and aluminum.

Global economic growth accelerated past year as higher investment and falling unemployment drove pickups in most major economies.

Financial markets have been hit by fears of a trade war following U.S. President Donald Trump's move to slap tariffs on steel and aluminum imports.

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With tax cuts boosting the economy this and next year, the OECD forecast the upper bound of the target federal funds rate could reach 3.25 percent by the end of 2019 from 1.5 percent now.

OECD Acting Chief Economist Alvaro Pereira observed: "In this environment, an escalation of trade tensions would be damaging for growth and jobs".

China and Japan were forecast to achieve yearly growth rates of 6.7 percent and 1.5 percent, respectively, this year. That was higher from a November forecast of 1.2 percent due to the broader global improvement.

Last week, Stats SA reported higher than expected GDP growth for South Africa in 2017, showing that the economy grew by 1.3%, exceeding National Treasury's expectation of 1.0%.

The OECD said high inflation would eat into United Kingdom household income while business investment would slow in the face of uncertainty over Britain's future relationship with the EU.

"Governments should avoid escalation and rely on global solutions to resolve excess capacity in the global steel industry".

The report revised 0.4% higher its predictions for USA growth - hitting 2.9% this year. "Safeguarding the rules-based global trading system is key".

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