Protectionism threatens global growth, OECD warns

Posted March 08, 2017

The world economy will witness modest growth in the next few years but it could be derailed by financial and policy instability, according to the Organisation for Economic Cooperation and Development.

But it went on to warn of a series of risks that threatened to destabilise this positive outlook - notably the increasing popularity of protectionist policies, which the OECD said would hurt global growth and threaten jobs dependent on trade.

In its previous report issued in November, the OECD estimated Canada's economic growth for 2016 would be 1.2 per cent, but that was upgraded Tuesday to 1.4 per cent, in line with what Statistics Canada reported last week.

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The OECD pegged its global growth forecast at 3%, a figure that it sees accelerating to 3.6% in 2018, thanks in part to stronger performances from India and a rebound in Brazil. This improvement largely reflects the combined effects of fiscal and structural initiatives in major economies, notably China, Canada and the U.S., together with a more expansionary stance in the euro area, the OECD said.

The think-tank said Canada's economy will be supported this year by export growth, a better market for commodities and government spending initiatives. Now, more than ever, governments need to take actions that restore people's confidence while at the same time resisting turning inwards or rolling back numerous advances that have been achieved through greater worldwide co-operation'.

Along with the possibility of different interest rates among the world's major advanced economies and the political uncertainty caused by looming elections in Europe, the OECD identified "significant uncertainty about the future direction of trade policy globally" as a potential barrier to improved growth. "Under these circumstances, it is time for a new trade policy that defends American sovereignty, enforces USA trade laws, uses American leverage to open markets overseas, and negotiates new trade agreements that are fairer and more effective both for the US and for the world trading system, particularly those countries committed to a market-based economy". The outlook for the fiscal year 2018 was retained at 7.7 percent. Prospects will depend on the extent to which labour-market duality is reduced and wage growth picks up. Japan's GDP growth will accelerate this year to 1.2% from 1% in 2016.

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China is projected to record a further slowing economy to 6.5 percent this year and 6.3 percent in 2018 as it "makes a necessary transition away from a reliance on external demand and heavy industry toward domestic consumption and services".

Higher commodity prices and easing inflation are supporting a recovery from deep recessions in Brazil and Russian Federation.

The organization said fiscal policy should be used to boost demand, especially if coupled with structural reform.

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