Markets

More Brexit blues: OECD halves United Kingdom growth forecast

More Brexit blues: OECD halves United Kingdom growth forecast

The OECD said that exceptionally weak global trade and financial distortions due to record-low interest rates are exacerbating a trend to slower global economic growth.

"While markets have since stabilised, sterling has depreciated by around 10 per cent in trade-weighted terms since the referendum". For 2016, GDP growth has been supported by a strong performance prior to the referendum, even though business investment contracted.

"The global economy is projected to grow at a slower pace this year than in 2015, with only a modest uptick in 2017", the group said in a statement accompanying the report.

The Paris-based organisation downgraded global GDP expectations to 2.9% this year, down from an earlier forecast of 3%. The OECD has performed a u-turn on its predictions for growth in 2016. Brexit would lead to a sell-off of assets and a sharp rise in risk premia.

However, Catherine Mann, the OECD's chief economist, warned it was still too soon to claim Britain had weathered the Brexit storm, adding the original forecast had not considered any response from the BoE.

High nonperforming loans in some euro area countries continue to hold back growth prospects and the significant slack in the labor market remains amid few signs of inflation and wage pressures, the report said. While low investment has played a role, rebalancing in China and a reversal in the development of global value chains could signal permanently lower trade growth, leading to weaker productivity growth. "Nor did we presume to make any judgements about what fiscal policy might do".

Deutsche Bank (DB) Stock Slumping on $14 Billion Fine
The blue-chip FTSE 100 index closed down 0.3 percent at 6,710.28 points, posting a loss of around 1 percent over the week. The energy index was a close second, declining 0.94 percent as oil prices fell 2.2 percent on worries of oversupply.


In Europe, Britain is projected to have the lowest growth rate in 2017 after Italy, since its forecast was revised downward by one percentage point from the last report.

USA growth is forecast to pick up to 2.1% in 2017, though this is lower than the OECD's earlier 2.2% prediction.

Speaking to The Wall Street Journal, OECD Chief Economist Catherine Mann said that skepticism reflected past failures to help the minority of workers who had lost their jobs as a effect of globalization, but those mistakes could be corrected with more funding for retraining and other assistance in the future.

That leaves the United Kingdom central bank on track to cut interest rates again in November to slightly above zero.

The OECD fears that weak growth, stagnant living standards and rising inequality are eroding support for globalisation and making it harder for governments to pursue structural reforms.

A collapse in trade growth suggests that globalization may be stalling and is contributing to a stagnation in world economic output, the Organization for Economic Cooperation and Development said.


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