OECD rings alarm bell over threat of global growth recession thanks to China slowdown

Think-tank predicts GDP expansion of just 2.9 per cent for 2015

Catherine Mann of the OECD: ‘World trade has been a bellwether for global output’ (Getty)

China’s economic slowdown is set to drag the global economy to the verge of recession, according to the latest forecasts from the Organisation for Economic Co-operation and Development (OECD).

The Paris-based multilateral organisation said the world economy will expand by just 2.9 per cent this year, slipping below the 3 per cent level often used to classify a global “growth recession”.

The OECD’s latest forecast is lower than the already gloomy 3.1 per cent estimate from the International Monetary Fund. And it would represent the weakest level of global output expansion since 2009, when the world was in the midst of the biggest financial crisis since the 1930s.

The OECD said China’s domestic economic deceleration was “at the heart” of the downgrade in its twice-yearly global outlook. Global trade is set to expand by just 2 per cent this year, a pace described by Catherine Mann, the OECD’s chief economist, as “deeply concerning”.

Ms Mann noted there have been just five years in the past half century in which trade growth was so weak. “World trade has been a bellwether for global output” she warned.

“The growth rates of global trade observed so far in 2015 have, in the past, been associated with global recession”.

The OECD said the trade deceleration was largely explained by a sharp decline in Chinese imports. China’s slowing levels of domestic investment have led to a collapse in the global price of commodities ranging from oil to copper, hammering emerging market exporters from Brazil to Russia and wreaking havoc among commercial commodity producers.

The OECD forecast global growth to pick up to 3.3 per cent in 2016 and 3.6 per cent in 2017. But Angel Gurria, the OECD’s secretary general, noted that by historical standards even this was lacklustre. “Ten years after the onset of the crisis we still would not have achieved the global rate of growth enjoyed before the crisis,” he said. Mr Gurria also remarked that “Even this improvement hinges on supportive macroeconomic policies, investment, continued low commodity prices for advanced economies and a steady improvement in the labour market.”

The OECD called for “greater ambition” from countries in the G20, which meets in Turkey this week, to support near-term demand and to boost potential growth through structural reforms. It particularly emphasised the economic benefits that would flow from actions to address climate change, which it said could be budget neutral and support growth.

The US economy was projected to carry on growing relatively strongly despite the global turbulence, with the OECD predicting 2.5 per cent growth in 2016, up from 2.4 per cent this year. Despite its call for more monetary stimulus, the OECD said the Federal Reserve should push ahead with a rate increase in December.

It downgraded the forecast for growth in the eurozone to 1.5 per cent in 2015 and 1.8 per cent next year. The OECD said growth in China would slow to 6.8 per cent in 2015, below the 7 per cent target of the Beijing authorities.

As for the UK, the OECD forecast growth this year of 2.4 per cent, followed by the same next year.