OECD Lowers Global Growth Outlook Amidst Trade Wars & Rising Rates

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Global Growth Outlook Lowered

In its latest outlook, delivered yesterday, the Organisation for Economic Cooperation and Development warned that the global economy has peaked and now faces a slowdown over coming years due mainly to the negative impacts of ongoing trade disputes and rising global interest rates.

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Speaking on Wednesday, the organization said that it had revised its 2019 global growth forecast lower to 3.5% from the previously forecast 3.7% while growth is now predicted to fall as low as 3% in 2020.

In the statement, the group warned that should the US raise tariffs on all Chinese goods to 25%, which president Trump has threatened to do, the negative impact on the global economy would be significant.

Non-OECD Countries To Be Hit Hardest

Indeed, the group notes that the projected slow down would hit non-OECD countries harder as many emerging market economies would likely experience greater capital outflows at a time when this is already happening due to the Fed raising rates.

As well as lowering its forecasts for global economic growth, the OECD cut its forecasts for countries it deems to be at risk, including Brazil, Russia, Turkey, and South Africa.

Speaking with reporters, the head economist for the OECD, Laurence Boone, said

“We’re returning to the long-term trend. We’re not expecting a hard landing. However, there’s a lot of risks. A soft landing is always difficult.”

The OECD says that despite labor markets remaining in good health in major economies such as the US and UK, trade and investment have seen a downturn due to the trade tariffs.

Trade Conflicts The Main Drag On Growth

The head of the agency, Angel Gurria, said:

“Trade conflicts and political uncertainty are adding to the difficulties governments face in ensuring that economic growth remains strong, sustainable and inclusive.”

Indeed, the OECD believes that a full-scale trade war and the attached economic uncertainty would wipe as much as 0.8% off global GDP by 2021.

China Growth To Hit 30 Year Low

The group also revised lower its forecasts for China which it now projects to see growth slow from current levels of 6.6% to a 30 year low of 6% as a result of higher tariffs.

Speaking on China, the OEC said:

“A much sharper slowdown in Chinese growth would damage global growth significantly, particularly if it were to hit financial market confidence.”

Interestingly, though the US has been the main driver of the trade wars which are set to negatively impact the global economy, the US economy itself is set to perform better than others. The OECD projects growth in the US economy, which is the largest in the world, to slow from nearly 3% this year to just above 2% by 2020.

Furthermore, in the UK, which is currently beset by Brexit uncertainty, growth is actually expected to rise from 1.3% in 2018 to 1.4% in 2019.

Technical Perspective

S&P 500

The S&P moved lower in response to the OECD’s warning, moving back down towards the current 2018 low of 2604.37. After rallying all the way back up to test the 2801.65 resistance level, following the dramatic declines seen a couple of months ago, equities are now back under pressure as risk sentiment has weakened once again.

To the downside, the next key levels are the aforementioned 2018 low and below there the 2551.87 low. If we move lower than that, the next level which might provide support is the 2482.29 level which holds the completion of the ABCD symmetry move from the current all-time highs. This move could well complete the correction lower and see prices turn higher once again.

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