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Brexit not helping global “low growth trap” says OECD

PARIS: September 21, 2016. The OECD expects global GDP growth to be 2.9 percent in 2016 with weaker conditions in advanced economies, including the effects of Brexit, offset by a gradual improvement in major emerging market commodity producers.

The organization says the world economy remains in a "low-growth trap with persistent growth disappointments weighing on growth expectations and feeding back into weak trade, investment, productivity and wages".

The volume of world trade fell in the first quarter of 2016 and, despite some recovery in the second quarter, growth is expected to be less that global GDP - suggesting globalization as measured by trade intensity may have stalled.

OECD outlook 2016The OECD says structural factors, such as a slowdown and reversal of trade liberalization and the weakening of global value chains (particularly in China and East Asia), have played a significant role in the deceleration in trade growth between 2011 and 2015.

"The marked slowdown in world trade underlines concerns about the robustness of the economy and the difficulties in exiting the low-growth trap," said OECD chief economist Catherine Mann. "While weak demand is surely playing a role in the trade slowdown, a lack of political support for trade policies whose benefits could be widely shared is of deep concern."

Noting the high volatility in financial markets in a post-Brexit Britain has caused a 10 percent devaluation in Sterling, the OECD expects UK growth to be 1.8 percent by year-end, down from 2.2 percent in 2015, and only 1.0 percent next year - "well below the pace in recent years and forecasts prior to the referendum".

The organization acknowledges that continued uncertainty about future UK government policy and consequent risks to the economy remain very high.

Growth in major emerging markets is expected to pick up slowly in 2017, with China's GDP growing at 6.2 percent and 7.5 percent in India. However Brazil's continuing recession will shrink its economy by 3.3 percent in 2016 and a further 0.3 percent in 2017.

For the OECD as a whole, potential GDP-per-capita growth is estimated at just 1.0 percent in 2016, half the average in the two decades preceding the [2008] crisis. Since 2011, potential per capita output growth in China has fallen by 1.75 percentage points while in the remaining BRIICS economies (now including Indonesia) it has been 1.0 percentage point.

To exit the low-growth trap, the OECD suggests governments need more ambitious policies, particularly those that boost trade, including commitments to stand still on new protectionist measures, roll back existing ones and urgently tackle other obstacles to trade and investment.

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