October 30, 2020

The OECD hard downs the growth forecast for the eurozone in 2019 | Economy

The OECD hard downs the growth forecast for the eurozone in 2019 | Economy

Containers in the port of Valencia. In video, the appearance of the chief economist of the OECD.

At the global level, commercial tensions and the "persistent" uncertainty in politics continue to threaten a global economy that continues, in general terms, to slow down. According the quarterly review of the economic predictions of the Paris-based agency, presented this Wednesday, the world economy will grow 3.3% this year, two tenths less than predicted in the November report, to stand at 3.4% in 2020, in what also constitutes a slight revision (-0.1 %) down compared to three months ago.

The risks that can aggravate the economic slowdown are, at this point, old acquaintances: "New steps to increase trade barriers, persistent political uncertainty, growth below the average in Europe, a Brexit turbulent or a stronger slowdown in China "than the one predicted -6.2% this year and 6% next-, among others, lists the OECD.

Therefore, Boone summarized in an urgent appeal the main message of the agency in the current situation: "Governments should cooperate to reduce risks," he said at a press conference in Paris. "The longer you wait, the higher the risk prospects will be," he said.

At the moment, there are some mattresses. "Labor markets remain, for the moment, resilient, and wage growth is slowly recovering, supported by family income and spending," says the agency.

But widespread uncertainty could also have a "massive impact" on those buffers, especially in the eurozone, warns the OECD. One of the results of the decline in confidence derived from uncertainties, Boone explained, is that companies "plan to use less". What is already a fact for a while in the United Kingdom, because of Brexit, begins to happen also in the eurozone, where "the creation of employment could be reduced by half, to two million, between 2019 and 2020," he warned. the chief economist. Something "even more worrying," he added, "because the labor market was starting to recover and wages were increasing."

Turbulence in the eurozone

More drastic is the revision of the eurozone, which down 0.8 points to put it this year in a mere 1% that will hardly reach 1.2% in 2020. Especially hard is the rectification in two countries. On the one hand, Germany, for which the OECD now forecasts growth of 0.7% in 2019 (only three months ago it still expected 1.4%) and 1.1% next year. And there is also Italy, a country that will be in a technical recession with negative growth of -0.2% this year which will barely surpass with a weak 0.5% in 2020.

Among the main responsible for this slowdown higher than expected in the Euro Zone, the OECD sees an industrial production "especially weak". Added to this is a moderation in external demand and "exceptional factors", such as the "disturbance of the automobile sector after new emission tests for vehicles". The situation could however go for longer, especially since "a weakened growth of trade in the eurozone, a high political uncertainty and a moderate confidence point to an underlying slowdown in demand that could persist". In the quarterly reviews – March and September – of the OECD perspectives, the Spanish economy is not analyzed, hence there are no concrete figures for this country.

The dangers of a Brexit hard

And then there is the problem of Brexit. Both for Europe and for the United Kingdom itself, whose growth prospects have also been revised downwards: 0.8% in 2019 and 0.9% in 2020. What worries the OECD most – like all the governments of the 28- is the possibility of a hard Brexit, that is, an exit without agreement with London. That, warns the agency, "would substantially increase the costs for European economies."

Despite all the contingency measures that could be taken, "a separation without agreement between the EU and the United Kingdom would continue to be a major disturbance for Europe and probably elsewhere in the world, given that the United Kingdom is an important commercial partner for many countries, "ditches the agency.

The recipe to regrow

Is there room to avoid another disaster? According to the OECD, yes. But it requires acting in a "coordinated" manner and, above all, in an "urgent" manner.

According to Boone, those countries where public debt is low and therefore have a certain fiscal margin, among which Spain is not, must "take advantage of low interest rates to make more public investments" and, at the same time, continue structural reforms, which he recommends in general to all countries. The EU, he stressed, has in this sense a "strong" advantage: "because thanks to the single market, any action that leads to growth in one country benefits others," he recalled.

A projection carried out by the OECD calculates that if the countries with margin put in place a fiscal stimulus of 0.5 points of the GDP, and at the same time carried out structural reforms, the growth in the whole eurozone would be almost three tenths more in 2019 and of more than 5 tenths in 2021.

"A coordinated policy can address the global risks of the economy," Boone said. "The combination of low interest rates, a coordinated fiscal stimulus and structural reforms can reverse the downward trend in the eurozone. But it is urgent "to act, he insisted.

In the commercial pulse, the United States is winning (for now)

The OECD does not like to point the finger at any of its member countries, especially if it is one as powerful – and, lately, as problematic – as the United States. But there is no way to make up that after all the warnings of recent years about the dangers for the world economy of trade tensions is Washington as the main recipient. After all, it is at the decision of the Government of Donald Trump that trade with China, the EU or North American neighbors falter and that prices are increasing.

"Trade continues to be the biggest drag," stressed OECD chief economist Laurence Boone in Paris once again.

However, compared to Europe or China, the United States sails through waters – or skies – calmer, with growth only slightly revised downwards, up to 2.6% this year and 2.2% in 2020. According to the OECD, Part of this greater American resilience can be attributed to the fiscal stimulus that the Paris-based agency still does not see favorably.

But it does not mean that, if this is a pulse – as Trump seems to want – in which the important thing is to see who gives up before, the US seems to have more capacity for resistance than its opponents in this commercial battle. "I do not think it's the good strategy, because in the end, if everyone slows down, including China, the real engine of growth, the United States will also suffer a slowdown," Boone said.

According to the OECD, the US is already beginning to pay its price. "Higher rates have started to add to business costs and prices, and the growth of business investment and exports has moderated," the report said. But the price, next to the slowdown of the rest of the world economic blocs, is still low. Even so, the OECD insists on calling Washington to sit down to talk at a multilateral table "because this is what has sustained high growth until 2017," he recalls.


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