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OECD sees growth flounder as 'globalization stalls'

PARIS (Reuters) - Global economic growth will flounder this year and next at rates not seen since the financial crisis as the march of globalization grinds to a halt, the OECD warned on Wednesday.

A British flag and an EU flag are seen in front of a monitor displaying a graph of the Japanese yen's exchange rate against the U.S. dollar at a foreign exchange trading company in Tokyo, Japan, June 27, 2016. REUTERS/Toru Hanai

Long a motor for the global economy, trade growth is set to lag growth in the broader world economy this year, the Organisation for Economic Cooperation and Development said in an update of its main economic forecasts.

“This is well below past norms and implies that globalization as measured by trade intensity may have stalled,” the Paris-based organization said.

As a result, the OECD estimated the global economy would muster growth of only 2.9 percent this year, down from a forecast of 3.0 percent in its last estimates in June and the lowest rate since the global financial crisis of 2008-2009.

The OECD said many global supply chains that add economic value at each stage and are often rooted in China and other east Asian countries were unraveling as China sought to wean its economy off of exports for growth and some firms brought back production to their home countries.

A growing backlash against trade liberalization as well as recessions in some big commodity-producing countries were adding to the trade slowdown, which the OECD warned could erode already flagging productivity and thus ultimately living standards.

“If we could get back on track with the kind of trade growth that we had in the 1990s and 2000s, we would be able to return to productivity growth rates prior to the financial crisis,” OECD chief economist Catherine Mann told Reuters in an interview.

“Productivity has basically fallen by half since the financial crisis and that is a recipe for breaking promises to all of our citizens,” she said.


A backlash against trade has surged onto the political agenda of several countries facing elections in the coming months.

U.S. presidential candidate Donald Trump has campaigned hard to roll back trade liberalization while Germany and other European countries saw tens of thousands of people protest on Saturday against planned free trade deals with the United States and Canada.

Mann said that while voters could easily see losses from increased trade in the form of job cuts, the gains - lower prices for goods and more choice - were less visible.

With global growth seen picking up to only 3.2 percent next year - trimmed from 3.3 percent in June, Mann warned that would be too little to generate the jobs that youths expected and to respect pension promises to the elderly.

“This is not a pretty picture for global growth,” Mann said. “Across the board a three percent growth rate is insufficient to keep promises to citizens.”

The OECD said that growth in the United States was in particular looking weaker than only a few months ago, forecasting growth in the world’s biggest economy at 1.4 percent this year, down from a forecast of 1.8 percent in June.

Although that would be the weakest growth since the financial crisis in 2009 and weaker than the euro zone’s 1.5 percent, the OECD said that the U.S. Federal Reserve should go ahead with an interest rate hike of a quarter percentage point.

That would help keep asset prices from galloping ahead of growth in the real economy, potentially creating bubbles, Mann said as Fed policymakers prepared for a rate decision on Wednesday.

Next year, the OECD sees U.S. growth picking up to 2.1 percent, down from 2.2 percent in its last forecasts from June.

The OECD estimated the British economy would suffer less than initially feared as a result of a the vote in June to leave the European Union.

It forecast British growth of 1.8 percent, up from 1.7 percent in June. However, it cut the outlook for 2017 by half to only 1.0 percent as uncertainty about Britain’s trading relationship with the European Union lingered.

Reporting by Leigh Thomas; Editing by Michel Rose and Andrew Heavens