$470 billion trade war looms over OECD's optimistic global outlook

$470 billion trade war looms over OECD's optimistic global outlook

Britain was seen missing out on the global upturn, lagging all other G20 countries with growth of only 1.3 percent this year. Trade protectionism, however, remains a "key risk" to the world economy, according to the report.

In its quarterly report, the Paris-based research body said it expects growth to ease off in some of those economies this year, but not by as.

The US economy, by contrast, is seen expanding by 2.9 per cent this year and 2.8 per cent next, helped by the simulative effect of tax cuts. That's up from 3.7 per cent and 3.6 per cent respectively compared with its November projections.

The OECD said higher inflation in the United Kingdom would continue to squeeze household incomes.

The OECD predicts global GDP growth of 3.7 per cent in 2018 and 3.6 per cent in 2019, an uplift from its last predictions in November thanks to a pick-up in world trade as well as the short-term boost from US President Donald Trump's fiscal stimulus.

Weak business investment would also weigh on growth for the next two years amid uncertainty surrounding the Brexit negotiations.

With tax cuts boosting the economy this and next year, the OECD forecast the upper bound of the target federal funds rate could reach 3.25 percent by the end of 2019 from 1.5 percent now.

"We think the stronger economy is here to stay for the next couple of years", acting OECD chief economist Alvaro Pereira told Reuters."We are getting back to more normal circumstances than what we've seen in the last 10 years".

"A lot of investment happens in London, it doesn't happen in many other areas".

The OECD's latest economic outlook showed all but one G20 nation - Russian Federation - was set to grow at a faster pace this year than predicted last November.

But its brighter outlook came with a major caveat in the wake of the USA decision to slap import tariffs on steel and aluminum and the threat of retaliation by China, the European Union and others.

Mr Pereira said a global trade war would be harmful for the global economy.

"Stronger investment, the rebound in global trade and higher employment are helping to make the recovery increasingly broad-based".

"Any escalation, any retaliation or a tit-for-tat type of scenario would be very damaging", he said. "Governments of steel-producing economies should avoid escalation and rely on global solutions".

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