OECD Boosts Global Growth Forecasts On Trump Optimism

Tyler Durden's picture

The details of any Trump growth plan may not be available for a long time, but the general sentiment that Trump's fiscal spending boost will be good for global growth was enough for the Organization for Economic Cooperation and Development which on Monday said that U.S. and global economic growth would be boosted by increases in spending and tax cuts promised by the President-elect. However, the OECD also cautioned that those gains would be lost if he pressed ahead with threatened tariff increases that triggered retaliation.

As the OECD wrote in its twice-yearly report on global economic prospects "while the exact form it would take is uncertain", it does expect Trump to offer some fiscal stimulus from the early months of his presidency, and that its likely scale that would boost U.S. economic growth to 2.3% from 1.9% in 2017, and to 3% from 2.2% in 2018. As the WSJ briefed, there would also be benefits for other parts of the world as U.S. demand for imports rises, with global economic growth raised to 3.3% from 3.2% in 2017, and to 3.6% from 3.3% in 2018. The OECD is the first international economic policy agency to publish an estimate of the likely impact of Mr. Trump’s proposals.

The summary of the latest OECD growth forecast is shown in the FT chart below.

“There’s now some prospect of the world exiting from this low-growth trap,” said Ángel Gurria, the OECD’s secretary-general. “Even though we still show the signs of those very heavy legacies of the crisis, we may be at a moment where we could see a turn for the better.”

“[The Trump fiscal effect] is an important part of our projection,” Ms Mann told the FT. “We don’t think anything will happen over the next six months, but we expect [a stimulus worth] 0.25 to 0.5 per cent of national income in the second half of 2017, mostly spent on public infrastructure and 1 per cent or so in 2018 coming from tax cuts.”

Catherine Mann, chief economist of the OECD said: “We are concerned about the extent to which asset prices are underpinned by low interest rates — so monetary policy has been over-burdened and there is now a premium on getting fiscal levers pulled in the right way”.

How does the OECD arrive to its optimistic conclusion? The forecasts are based on an increase in U.S. government spending in 2017 and 2018 of 0.25% of gross domestic product, a cut in income taxes that reduces government revenue by 0.5% of GDP in each year, and a cut in the corporate tax rate that reduces revenue by 0.75% of GDP in 2018. It calculates that thanks to the boost to growth, such a package would leave the government’s debts slightly smaller as a share of economic output.

The OECD also said other governments should also provide more fiscal stimulus than now planned, since that would further boost global growth. With the room for monetary policy initiatives that boost growth having been “exhausted,” the OECD has in recent years urged more investment spending by governments as a way out of what it calls the “low-growth trap.”

“The actions and proposals we have seen so far are not enough,” said Mr. Gurria, who added the plans of most European governments “are too timid.”

There was no discussion of how global growth would react under the volatile combination of all time high global debt and rising rates. It did. however, discuss the potential downside of Trump policies saying protectionism could offset the boost from higher government spending and lower taxes. In addition to his pledges on spending and taxation, Trump has said he would introduce higher tariffs on imports from China and Mexico, and reassess other trade relationships that he said placed U.S. workers at a disadvantage.

“Protectionism and inevitable trade retaliation would offset much of the effects of the fiscal initiatives on domestic and global growth, raise prices, harm living standards, and leave countries in a worsened fiscal position,” said Catherine Mann, the OECD’s chief economist.

The OECD notes that for some of its members more than 25% of jobs depend on foreign demand. As a result, the OECD is happy to advise the Trump admin to focus mostly on the growth aspect, i.e., issuing even more debt while reneging on its protectionist vows.

Rather than resort to trade barriers in an attempt to protect some jobs in the short term, the OECD said governments would do better to help those who have lost their jobs acquire new skills.

 

“Let’s protect those who may be disadvantaged by the globalization process, but lets not stop the globalization process,” said Mr. Gurria.

The OECD also raised its growth forecast for the UK in 2017 to 1.2% from 1% in September, but said it expects the economy to slow further in 2018 to grow by just 1% as uncertainty about the terms of the country’s departure from the European Union weakens business investment. Its forecasts are lower than those of the U.K.’s Office for Budget Responsibility, which last week said it expects the economy to grow by 1.4% next year and 1.7% in 2018.

“The latest government plans...indicate a slower pace of fiscal consolidation and some increase in public investment,” the OECD said. “A more significant increase in public investment would support demand in the near term and boost supply in the longer term.”

In short: everything will be great if only more debt is used to pull demand from the future; anything else threatens accelerating the "secular stagflation" theme that has dominated global sentiment for the past several years.

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pickatheweek's picture

We don't hear about douchebank problems anymore do we.

bamawatson's picture

no problem
all fixed
move along

WTFUD's picture

These figures will be revised by the time i leave the bathroom. Flush it!

skbull44's picture

Believe it! The 'expert' prognosticators are always on the mark!

Paul Kersey's picture

Think Trump is in charge? Think the Republicans are in charge? How many of the Federal Reserve Bank's Board of Governors are Republicans? Zero!

"Give me control of a nation's money and I care not who makes it's laws"

SMOOCHY SMOOCHY CARLO's picture

Sure, Trump will save your Rust Belt 401Ks....

GreatUncle's picture

Ángel Gurria, the OECD’s secretary-general.

What a joke ...

“Let’s protect those who may be disadvantaged by the globalization process, but lets not stop the globalization process,” said Mr. Gurria.

What about the lives you have already fucked over through globalization?

Nope no compensation there, the globalists stole all that already they just want the rest and populations are waking up to the fact.

A mexican too boot, probability of being tainted with corruption 99.9% ...

Stan Smith's picture

There is definitely a new sheriff in town.

NDXTrader's picture

These folks are worse forecasters than my local weatherman. Why they even bother at this point is the question

orangegeek's picture

The bloodsuckers over at the UN/OECD crap all over Trump and then cheer economic growth - same scumbags invite muslim vermin into their backyard to rape their women and then stand by and watch.

 

OECD is a joke - UN is a joke.

 

Trump should put a knife through the heart of the UN.

sarz's picture

Cynthia McKinney has sent the following to the Wisconsin Attorney Geeral regarding the recount:

https://twitter.com/cynthiamckinney/status/803201300242386944

McKinney says that Stein may have committed perjury since she seems to have denied to her party workers that there was any hacking, which she has nonetheless affirmed on oath. McKinney herself was the Green Party candidate in 2008, so she must have her sources.

I thought Trump might pick her as the VP. There were some hints by Alex Jones and Roger Stone. Too bad he didn't.

VW Nerd's picture

Reagan 2.0.  Suprised he hasn't hired Art Laffer (google Laffer curve) yet.  Evidently he was angry with K. Conway regarding her honest comments about Romney over the weekend.  His campaign appeal was his brutal honesty.  Hopefully he doesn't change now and lead with BS....

silverer's picture

OPEC forgets the world's central banks will continue to make a concerted effort to torpedo the world economy. That one's over even Trump's head.