The global economy is slowing and major risks persist, with growth weakening much more than expected in Europe, according to the OECD’s latest Interim Economic Report.

 

Economic prospects are now weaker in nearly all G20 countries than previously anticipated. 

 

Vulnerabilities stemming from China and the weakening European economy, combined with a slowdown in trade and global manufacturing, high policy uncertainty and risks in financial markets, could undermine strong and sustainable medium-term growth worldwide, warns the new study.

 

Notable downward revisions in euro area

 

The OECD projects that the global economy will grow by 3.3 per cent in 2019 and 3.4 per cent in 2020. The outlook and projections cover all G20 economies. 

 

Downward revisions from the previous Economic Outlook in November 2018 are particularly significant for the euro area – notably, Germany and Italy, as well as for the UK, Canada and Turkey.

 

Sharp slowdown in China would hit global prospects

 

The Outlook identifies the Chinese and European slowdown, as well as the weakening of global trade growth, as the principal factors weighing on the world economy. It underlines that further trade restrictions and policy uncertainty could bring additional adverse effects on global growth. 

While policy stimulus is expected to help offset weak trade developments in China, risks remain of a sharper slowdown that would hit global growth and trade prospects.

 

 The risk of derailed growth

 

“The global economy is facing increasingly serious headwinds,” said OECD Chief Economist, Laurence Boone. 

 

“A sharper slowdown in any of the major regions could derail activity worldwide, especially if it spills over to financial markets. Governments should intensify multilateral dialogue to limit risks and co-ordinate policy actions to avoid a further downturn,” she said.

 

Fiscal stimulus required in Europe

 

The Outlook calls on central banks to remain supportive, but stresses that monetary policy alone cannot resolve the downturn in Europe or improve the modest medium-term growth prospects.

 

A new co-ordinated fiscal stimulus in low-debt European countries, together with renewed structural reforms in all euro area countries, would add momentum to a growth rebound, boost productivity and spur wage growth over the medium term.