The Strategist

The OECD bets on the American economy

03/14/2018 - 11:13

The growth rate of the world economy in 2018 and 2019 will accelerate to 3.9%, and this is the highest level since 2011, the Organization for Economic Cooperation and Development (OECD) expects. In 2017, this figure was 3.7%. The authors of the report believe that the main drivers of growth will be a tangible increase in investment and the recovery of trade volumes, although they note that a new wave of trade protectionism threatens the optimistic forecast, and the medium-term growth rates are still lower than before the crisis of 2008-2009.

V4711 via flickr
V4711 via flickr
Of the developing countries of the G20, forecasts for Brazil (2.2% this year vs. 1% in the past) and South Africa (1.9% vs. 1.2%) have been increased significantly. 

The OECD expects the most significant acceleration from the US economy: in 2018, its growth may reach 2.9% (plus 0.4 pp) versus 2.3% last year, in 2019 - 2.8% plus 0.7 percentage points). The main contribution to the increase in growth will be made by the tax reform, which assumes a sharp decrease in the burden on business and households. The total effect of these measures will amass 0.5-0.75% of GDP, the OECD says. The latest data on the labor market also indicate the acceleration of growth: a record number of new jobs was created in February (313 thousand, a maximum of one and a half years). Unemployment remains at the level of 4.1%, however, taking into account fiscal stimulation, its level according to the forecast of the OECD may decrease by an additional 0.5 pp.

Inflation in the US has also been showing signs of growth since the beginning of the year, albeit more moderate: in February (month to month), prices excluding food and energy rose by 0.2% against 0.5% in January (the annual rate has not changed - 1, 8%). After a higher average hourly wage growth in January (by 0.3%, 2.8% compared to the same period last year), the increase in February was more modest (0.1%, to 2.6% for the year). Nevertheless, such an increase in indicators, according to Capital Economics, will allow the Fed to raise the rate this year four, not three times (the markets have already took the lead from the rate increase in March). Generally, the OECD expects that by the end of 2019, the Fed's rate may rise to 3%, even despite a relatively slow rise in prices.