Global Growth to Hit Decade Low Amid U.S.-China Trade War



Paul Hannon | Wall Street Journal

The global economy is set to grow at the slowest pace since the financial crisis, with business investment and trade hampered by an escalating dispute between the U.S. and China that could inflict even more damage over coming years, the Organization for Economic Cooperation and Development said Thursday.

The Paris-based research body said it now expects world output of goods and services to increase by 2.9% this year, the smallest annual rise since 2009 when the global economy was pushed into a recession by the near-collapse of the financial system.

It expects growth to remain low in 2020 and possibly beyond if the trade conflict between the U.S. and China spills over into other aspects of their economic relationship. The OECD noted that the affiliates of U.S. companies operating in China have sales that exceed total U.S. exports to China.

Like other international financial institutions, the OECD has long backed free trade and a more open global economy as a path to prosperity.

“Our main worry is that this sliding of growth is becoming entrenched,” said Laurence Boone, the OECD’s chief economist.

Another worry for Ms. Boone is that trade disputes could proliferate, with Japan and South Korea already in conflict and U.S. President Donald Trump due to decide in November whether to press ahead with tariffs on automobile imports that would hit the European Union.

The OECD cut its growth forecasts for the U.S. and a number of developing economies. It now expects U.S. gross domestic product to increase by 2.4% this year and 2% the next year, having forecast growth of 2.8% and 2.3% in May. It made an even larger cut to its 2019 growth projections for Mexico, Argentina, Brazil, India, Russia, Saudi Arabia and South Africa.

The U.S.-China dispute isn’t the only cloud on the OECD’s horizon, even if it is the largest and darkest. The research body also warned that should the U.K. leave the European Union without a new trade deal, economic output could be 2% lower than would otherwise be the case in the U.K., and 0.5% lower in the EU. That would leave the U.K. in recession, and the EU on the brink.

The U.K. has already delayed its departure from the EU once and may do so again as an Oct. 31 deadline nears.

“It’s adding to this uncertainty that’s prevailing everywhere,” said Ms. Boone in an interview with The Wall Street Journal.

Slowing trade flows and business investment are the most obvious signs that trade disputes are taking a toll on global growth. The OECD said that across the Group of 20 leading economies, investment spending rose at an annual rate of just 1% in the first half of this year, compared with 5% at the start of 2018, when the U.S. first raised tariffs.

U.S. Farmers on China Tariffs: 'This Isn't Just a Chess Match'
U.S. Farmers on China Tariffs: ‘This Isn’t Just a Chess Match’
The trade war with China is putting a strain on the U.S. agriculture industry. WSJ’s Jason Bellini sat down with a group of farmers from the corn, beef, soybean, and dairy industries to hear how tariffs are affecting their businesses.

Thus far, the jobs market has held up well in most developed economies, but the OECD said that support to growth may also be under threat.

“You can’t have this kind of slowdown without some impact on jobs at some stage,” said Ms. Boone.

Over recent years, more voters in many countries have rejected the free-trade path advocated by the OECD, sending globalization into retreat.

Ms. Boone thinks they may have second thoughts as the costs of that reversal become more apparent.

“The appetite for destruction looks like it’s growing,” she said. “But the impact hasn’t been palpable for people. When they see firms going bankrupt, jobs being lost, people may question this move.”

Write to Paul Hannon at


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