OECD shaves global growth forecast, sounds alarm on trade

The OECD cut Monday its global growth forecasts, sounding the alarm on stagnating trade, which has in the past been the canary in the cage for a global recession.

Nevertheless, thanks to stimulus measures taken by China and other countries, the Organisation for Economic Development and Cooperation believes the impact shall be mitigated.

It trimmed its forecast for global growth this year by a tenth of a percentage point to 2.9 percent, while lowering its 2016 by three tenths of a percentage point to 3.3 percent.

"Global growth is projected to strengthen slowly over the course of 2016-2017, against a background of subdued inflationary pressure," said the OECD, which sees a pick up to 3.6 percent growth in 2017.

Catherine Mann, the chief economist of the Paris-based policy analysis group that represents 34 advanced economies, called "deeply concerning" the stagnation or even decline in global trade this year.

"Robust trade and global growth go hand in hand," she said in a statement accompanying the OECD's latest report on the global economic outlook.

"World trade has been a bellwether for global output" and the trade performance seen this year has in the past "been associated with global recession," she said.

Trade stagnation has primarily been due to the slowdown in China as it seeks to rebalance its economy from manufacturing and exports to services and consumption.

This has provoked a slump in commodity prices that has affected emerging economies across the globe.

"Developments in China appear to be at the heart of this," said Mann.

But thanks to prompt introduction of stimulus measures, the OECD bumped up its forecast for Chinese growth this year to 6.8 percent, compared to the last forecast of 6.7 percent it made in September. The 6.5 percent forecast for 2016 is unchanged.

Brazil, hit by the collapse in commodity prices, doesn't fare nearly as well. The OECD now sees Brazil's economy contracting by 3.1 percent this year, worse than the 2.8 percent contraction it forecast in September.

For 2016 it sees a continuation of the recession with a 1.2 percent contraction.

"Despite large currency depreciations, recovery will be only gradual in Brazil..." said the OECD.

It forecasts growth in the United States to remain "relatively solid" at 2.4 percent this year and 2.5 percent in 2016 as private sector investment outweighing an appreciation of the dollar as interest rates rise.

Growth in the eurozone is set to strengthen but remain lacklustre, even though the OECD trimmed its forecast to 1.5 percent this year and 1.8 percent in 2016.