eBusiness Weekly
Clive Mphambela
In November last year, the Organisation for Economic Co-operation and Development (OECD), a Global economic watchdog, issued a chilling warning about an impending slowdown of the global economy.
The OECD said growth had gone past its peak and faced significant downside risks from a number of factors, chief among them, the ongoing trade disputes and the threat of a further tightening of interest rates.
The global economy has passed its peak and faces a slowdown driven by trade disputes and higher interest rates, according to a global economic watchdog.
Cutting its 2019 global growth forecasts for 2019 to 3,5 percent from the 3,7 percent that it had predicted, the OECD, which advises many of the world’s richest economies, warned that if the United States was to go ahead with its 25 percent tariff hike on all Chinese imports, as Trump had threatened, the world economic growth could recede as far as 3 percent by 2020.
Citing the ongoing trade wars and growing debt as the largest risks to the world economy, the OECD noted that the growth slowdown is expected to have its largest negative impact on non-OECD economies, with many emerging-market economies likely to see large capital outflows in response to tightening of policy by the US Federal Reserve, which is gradually expected to raise interest rates, to stop the US economy overheating.
With an ominously negative outlook for countries such as Brazil, Russia, Turkey and South Africa, the global economic outlook should get us all down here, quite concerned.
Added to the above risks, this week OPEC, the global oil cartel announced output cuts that are set to trigger a rise in crude oil prices.
All this is happening in a world that is facing a large potential risk of disturbances in Venezuela that could further impact the oil sector.
The Paris-based OECD noted that despite the generally good state of labour markets, particularly in the USA where job creation has been strong, trade and investment are taking a hit from the tariff wars.
“Trade conflicts and political uncertainty are adding to the difficulties governments face in ensuring that economic growth remains strong, sustainable and inclusive,” OECD chief Angel Gurria was quoted as saying, with economists predicting that the effects of a full-blown trade war and the resulting economic uncertainty could knock off as much as 0,8 percent of global gross domestic product by 2021. This is not a healthy outlook.
In line with broad slowdown China is expected to slow down growth from the current 6,6 percent per annum average to a 30-year low of 6,0 percent and below, by 2020, in the face of higher US trade tariffs, with added risk that a much sharper slowdown in Chinese growth would damage global growth significantly, particularly if it were to hurt financial market confidence.
While being the instigator of current global trade tensions, the US economy is expected to come out of the mêlée far better off than most of the other major economies. The OECD’s 2019 forecast for the US economy has remained largely unchanged, but faces a slight depression to just over 2 percent by 2020.
The global economy is not just dithering due to the US Sino trade war. The Brexit debacle is also taking a major toll on Europe.
In Britain, the OECD forecast growth would pick up from 1,3 percent this year to 1,4 percent in 2019.
Yesterday, the Guardian reported that Brexit has already cost the economy at least £80 billion in lost growth in the two-and-a-half years since the EU referendum, according to a Bank of England rate-setter release.
Speaking out of London, Gertjan Vlieghe, an external member of the Bank of England’s monetary policy committee, also predicted that a potentially damaging no-deal Brexit scenario could force the Bank to implement an emergency cut in interest rates, in order to stave off a recession.
The Bank said since the EU referendum in June 2016, the British economy had lost about 2 percent of GDP relative to a scenario where that had been no significant domestic economic events.
The Brexit vote is estimated to have cost the economy £40 billion per year, or about £800 million per week in lost income, an amount which was more than double the £350 million per week that the Leave campaign had predicted.
With weaker UK growth in the past two years than has been expected based on the performance of the global economy alone, the impact on the rest of Europe is beginning to be felt.
The German economy ministry has waded into the discussion, blaming Brexit uncertainty and the ongoing trade disputes as key triggers for the slowdown in Germanys economy.
Britain’s impending departure from the European Union and trade disputes are still causing uncertainty for the German economy but the car industry is making progress in adapting to new WLTP pollution standards, the Economy Ministry is quoted saying.
While the Germans expect the slowdown to be ameliorated by a construction boom, which is likely to continue in the coming months, given an increase in orders, and expectations that private consumption will remain strong, overall indicators suggest that exports from Europe’s largest economy will become increasingly subdued in the coming months.
The above picture does weigh in heavily on growth prospects for Zimbabwe. Oil prices impose further downside pressure on an already stressed economy and the potential for a firming of US interest rates imposes a risk that commodity prices for gold and other precious metals will recede in the face of a firming US dollar. A pretty bad combination of forces against us. These factors may prove the economic environment very difficult for our exports, which are reeling from lack of competitiveness due to the effects of a strong US dollar.
The writer is an economist and the views expressed in this article are his personal opinions and should in no way be interpreted to represent the views of any organisations that the writer may be associated with. Clive can be contacted on +263772206913 r on [email protected]
