The group continued the gloomy tone it has held
for some time, warning that trade disruptions could ricochet throughout
the world economy. "Now that scenario has come to pass, with
manufacturing production clobbered by tariffs, a sharp slowdown in
investment, and confidence faltering," Bloomberg reported the OECD said.
Things could get worse given the renewed
tensions, which have expanded into a U.S. ban on China's Huawei
Technologies, the world's second-biggest mobile phone maker. An index of
global trade is already at a decade low, and a WTO measure is signaling
continued weakness this quarter, Bloomberg noted.
The OECD also flagged other risks, including
weakness in manufacturing that is infecting services, a bout of
financial stress from high private debt and faltering domestic demand in
China. While there were small upgrades to its forecasts for the U.S.
and the euro area, they were completely overshadowed by the pessimistic
mood of the report.
"The outlook remains weak and there are many
downside risks that cast a dark shadow over the global economy and
people's well-being," Chief Economist Laurence Boone said.
The increasingly fragile trade situation is
pressuring policy makers to urgently find a response. Investors have
increased bets on a U.S. interest-rate cut by the Federal Reserve this
year and Australia's central bank chief said he'll consider easing
monetary policy next month.
But with many central banks having little scope
to provide more stimulus, the OECD said the onus now falls on
governments to repair multilateral negotiations and use any available
fiscal space.
The first step should be to "reignite
multilateral trade discussions," the group opined, and warned that the
new measures announced this month could double the impact of tariff
increases on growth in China and the U.S. and have a ripple effect
around the world.
In addition to trade problems, China also faces
domestic difficulties that could have a global impact. Despite signs of
stabilization the OECD said there are risks that policy stimulus could
prove insufficient, provoking a slowdown in domestic demand. Spillovers
would be even bigger if central banks still had little margin to react,
it said.
"Growth is set to remain subpar as trade
tensions persist, while contributing to the divide between people,"
Boone said. "Governments can and must act together to restore growth
that will be sustainable and benefit all."
Meanwhile, a Chinese foreign ministry spokesman
accused Washington of misusing "state power" to hurt foreign companies
and interfere in commercial markets, the Washington Post reported.
The spokesman, Lu Kang, said in a routine
briefing on Tuesday that "The Chinese government has determination and
ability to safeguard its legitimate and lawful rights and interests."
Responding to a question about President Donald
Trump's comment that a trade deal with Beijing has to be more beneficial
to the U.S. than China, Lu said it was "unscientific and
unprofessional" to assume that there must always be a winner and a loser
in trade relations between the two countries.
He said any agreement must be balanced, equal
and mutually beneficial. Lu also said that using government power to
"crackdown" on foreign companies and interfere in markets would not be
in the interest of the U.S.
U.S. farmers are facing markets already weakened
by trade uncertainty and some overseas market pullbacks. The OECD
report is likely not much of a surprise just now, but clearly increases
the economic stakes as debates continue over North American and Asian
trade deals. Trade, along with as potential additional government market
support proposals should continue to be watched closely as they evolve,
Washington Insider believes.