PARIS – An international economic agency said Monday that the kind of infrastructure spending promised by U.S. President-elect Donald Trump could boost global growth, but warned that protectionist tendencies hurt prosperity.
The Organization for Economic Cooperation and Development overall hit an upbeat note in its latest world economic outlook Monday, thanks in part to stimulus efforts planned in the U.S. and China. The OECD raised its forecasts for global growth to 3.3 per cent for next year, up from 3.2 per cent in its last outlook.
After years of low growth, “there is reason to hope that the global economy may be at a point of inflection,” as low interest rates give governments more freedom to lower taxes and spend on infrastructure and education, OECD chief Angel Gurria said.
The Paris-based intergovernmental agency encouraged governments such as Germany to take more advantage of this window of low rates.
Gurria noted that markets have rallied on Trump’s promises to cut taxes and increasing infrastructure investments, but said it remains unclear how many of those pledges Trump can or will fulfil.
“There is an expectation that if this mix is actually practiced, if it happens, if it becomes real, there will be an increase in economic activity,” he said.
The OECD raised U.S. growth forecasts slightly to 2.3 per cent for 2017, and predicted 3 per cent growth in 2018 based on “an assumed easing of fiscal policy.” The forecast for eurozone growth next year was also shifted upward to 1.6 per cent.
After Trump’s campaign tirades against free trade, the OECD also warned that growth could be threatened by protectionism. That “would likely raise prices, harm living standards and leave countries in a worsened fiscal position. Trade protectionism may shelter some jobs, but it will worsen prospects and lower well-being for many others,” OECD chief economist Catherine Mann told reporters.