U.S., China need to reverse course in trade row to help economy: OECD

PARIS (Reuters) - Economic growth in China and the United States could be 0.2-0.3% lower on average by 2021 and 2022 if the two countries do not row back on tit-for-tat tariffs in their dispute that has dampened the global economic outlook, the OECD said on Tuesday.

FILE PHOTO: Shipping containers are seen at a port in Lianyungang, Jiangsu province, China September 8, 2018. REUTERS/Stringer

U.S. President Donald Trump has raised tariffs on $200 billion on Chinese imports to 25% from 10% in the long-running trade row, while Beijing said it would hit back by lifting tariffs on $60 billion in U.S. goods.

The global economy would grow by only 3.2% this year as growth in trade flows is nearly halved this year to only 2.1%, the Organisation for Economic Cooperation and Development (OECD) said in its biannual Economic Outlook.

That would be the slowest pace of global economic growth since 2016 and was down marginally from the Paris-based policy forum’s last forecast in March for growth of 3.3%.

The world economy should fare slightly better next year with a growth rate of 3.4%, but only if the United States and China pull back from tariff hikes announced this month.

The OECD said growth in China and the United States could come in 0.2-0.3% lower on average by 2021 and 2022 if the two nations did not reverse course.

Without taking the latest round of tariff increases into account, the OECD forecast the United States would outpace other big developed economies with growth of 2.8% this year, up from the 2.6% the organization had projected in March.

The world’s biggest economy was seen slowing to 2.3% next year even if the new tariff hikes are not carried through.

China, which is not an OECD country, has been seeking to stimulate its economy but growth was still seen easing from 6.2% this year to 6.0% in 2020, the lowest rate in 30 years for the world’s second-biggest economy.

Global investors are closely watching to see how much more support Beijing will inject to shore up growth after China already loosened monetary policy, cut taxes and allowed local governments to issue special bonds to fund infrastructure projects.

Japan’s export-dependent economy is suffering from the drop in trade flows with growth expected at only 0.7% in 2019 and 0.6% in 2020, trimmed from the OECD’s March forecasts of 0.8% and 0.7% respectively.

The euro zone is also paying a heavy price for the global trade slowdown, with its growth seen this year at 1.2% before rising to 1.4% year. That was slightly better than the 1.0% and 1.2% expected in March as Italy’s downturn proves slightly less severe than previously expected

Meanwhile, the OECD raised Britain’s growth forecast to 1.2% this year from 0.8% previously, as the prospect of its exit from the European Union was pushed back. UK growth is expected to fall to 1.0%, marginally better than the 0.9% expected in March.

Reporting by Leigh Thomas; Editing by Sudip Kar-Gupta and Edmund Blair