PARIS: The trade war between the United States and China has plunged global growth to its lowest levels in a decade, the OECD said on Thursday as it slashed its forecasts.
The Organization for Economic Cooperation and Development said that the global economy risked entering a new, lasting low-growth phase if governments continued to dither over how to respond.
The global economy will see its weakest growth since the 2008-2009 financial crisis this year, slowing from 3.6pc last year to 2.9pc this year before a predicted 3.0pc in 2020, the OECD said.
The Paris-based policy forum said the outlook had taken a turn for the worse since it last updated its forecasts in May, when it estimated the global economy would grow 3.2pc this year and 3.4pc in 2020.
“What looked like temporary trade tensions are turning into a long-lasting new state of trade relationships,” OECD chief economist Laurence Boone told Reuters.
“The global order that regulated trade is gone and we are in a new era of less certain, more bilateral and sometimes assertive trade relations,” she added.
Trade growth, which had been the motor of the global recovery after the financial crisis had fallen from 5pc in 2017 into negative territory now, Boone said.
Meanwhile, trade tensions have weighed on business confidence, knocking investment growth down from 4pc two years ago to only 1pc.
Boone said that there was evidence that the trade standoff was taking its toll on the US economy, hitting some manufactured products and triggering farm bankruptcies.
The world’s biggest economy would grow 2.4pc this year and 2.0pc next year instead of the 2.8pc and 2.3pc respectively that the OECD had forecast in May.
China would also feel the pain with the second-biggest economy growing 6.1pc in 2019 and 5.7pc in 2020, outlooks the OECD cut from 6.2pc and 6.0pc previously.
The OECD estimated that a sustained decline in Chinese domestic demand of about 2 percentage points annually could trigger a significant knock-on effect on the global economy.
If accompanied with a deterioration in financial conditions and more uncertainty, such a scenario would mean global growth would be cut by 0.7 percentage points per year in the first two years of the shock.
Meanwhile, uncertainty over government policies was also hitting the outlook for Britain as it lurches towards leaving the European Union.
The OECD forecast British growth of 1pc in 2019 and 0.9pc in 2020, but only if it left the EU smoothly with a transition period, a far from certain conclusion at this stage. The OECD had forecast in May growth of 1.2pc and 1.0pc.
If Britain leaves without a deal, its economy will be 2pc lower than otherwise in 2020-2021 even if its exit is relatively smooth with fully operational infrastructure in place, the OECD said.
The euro area would not be spared from negative spillovers under such a scenario and would see its gross domestic product cut by half a percentage point over 2020-2021.
The OECD trimmed its forecast for the shared currency block, largely due to the slowdown in its biggest economy, Germany, which was estimated to be in a technical recession.
Euro zone growth was seen at 1.0pc – down from 1.2pc in May – this year and 1.0pc in 2020 – down from 1.4pc in May.
Boone said Germany’s economy had probably shrunk in the second and third quarters with a slump in car manufacturing, which accounts for 4.7pc of German GDP, knocking three-fourths of a percentage point off German growth.