OECD lowers global growth forecast over trade tensions

For the eurozone in 2020, the OECD cut its forecast to 1.2 percent, down 0.4 points from its last outlook report. (AFP)
Updated 06 March 2019
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OECD lowers global growth forecast over trade tensions

  • The OECD also warned of potential risks including China’s slowdown sharpening and knock-on effects in the event of a no-deal Brexit
  • For the eurozone in 2020, the OECD cut its forecast to 1.2 percent, down 0.4 points from its last outlook report

PARIS: Global trade tensions and political uncertainty are weighing on the world’s economy, the OECD warned Wednesday, cutting its global growth forecast for this year to 3.3 percent, down from the 3.5 percent it predicted in November.
The Organization for Economic Co-operation and Development, which groups the world’s top developed economies, also warned of potential risks including China’s slowdown sharpening and knock-on effects in the event of a no-deal Brexit.
“High policy uncertainty, ongoing trade tensions, and a further erosion of business and consumer confidence are all contributing to the slowdown,” the Paris-based OECD said in an interim version of its Economic Outlook.
The OECD revised growth downwards in almost all of the countries in the G20 group of industrialized and emerging nations.
The 19-nation eurozone was particularly hard hit, with predicted growth dropping from 1.8 percent to one percent.
The growth forecast for European powerhouse Germany sunk to 0.7 percent from 1.4, while Italy’s was slashed from 0.9 percent to -0.2.
The OECD said the sharp downturn in the two countries reflected “their relatively high exposures to the global trade slowdown compared with that of France,” which dropped from 1.5 percent to 1.3.
Britain’s forecast was chopped to 0.8 percent from 1.4 — but the OECD emphasized that this projection was based on the assumption of a smooth Brexit.
If Britain crashes out of the EU without a deal — the two sides are currently in talks ahead of the scheduled leave date on March 29 — the OECD said its outlook would be “significantly weaker.”
“OECD analysis suggests that the increase in tariffs between the two economies as a result of WTO rules coming into effect would reduce GDP by around two percent (relative to baseline) in the United Kingdom in the next two years.”
It also warned a disorderly Brexit “would raise the costs for European economies substantially.”
“Although contingency measures to soften the impact of a no-deal outcome are being taken by both sides, UK-EU separation without an agreement would still be a major adverse shock for Europe and possibly elsewhere in the world.”
For the eurozone in 2020, the OECD cut its forecast to 1.2 percent, down 0.4 points from its last outlook report.
Trade restrictions imposed last year — most notably by the United States and China — are “a drag on growth, investment and living standards, particularly for low-income households,” the OECD said in its report.
The world’s two biggest economies are in the middle of trade negotiations, but the OECD warned that other risks remain even if they do reach a deal, including potential US tariffs on European car imports.
“This would hit Europe particularly, where motor vehicle exports represent around one-tenth of total EU merchandise exports to the United States,” the OECD said.
Growth for China, which is facing an economic slowdown, was revised down slightly to 6.2 percent from 6.3 percent for this year and steady at six percent for 2020.
But the OECD warned that “a sharper slowdown in China would hit growth and trade prospects around the world.”


Palestinians in financial crisis after Israel, US moves

Updated 22 March 2019
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Palestinians in financial crisis after Israel, US moves

  • A Ramallah-based economics professor said the Palestinian economy more generally, remain totally controlled by and reliant on Israel
  • Israeli-Palestinian peace efforts have been at a standstill since 2014

RAMALLAH, Palestinian Territories: The Palestinian Authority faces a suffocating financial crisis after deep US aid cuts and an Israeli move to withhold tax transfers, sparking fears for the stability of the West Bank.
The authority, headed by President Mahmud Abbas, announced a package of emergency measures on March 10, including halving the salaries of many civil servants.
The United States has cut more than $500 million in Palestinian aid in the last year, though only a fraction of that went directly to the PA.
The PA has decided to refuse what little US aid remains on offer for fear of civil suits under new legislation passed by Congress.
Israel has also announced it intends to deduct around $10 million a month in taxes it collects for the PA in a dispute over payments to the families of prisoners in Israeli jails.
In response, Abbas has refused to receive any funds at all, labelling the Israeli reductions theft.
That will leave his government with a monthly shortfall of around $190 million for the length of the crisis.
The money makes up more than 50 percent of the PA’s monthly revenues, with other funds coming from local taxes and foreign aid.

While the impact of the cuts is still being assessed, analysts fear it could affect the stability of the occupied West Bank.
“If the economic situation remains so difficult and the PA is unable to pay salaries and provide services, in addition to continuing (Israeli) settlement expansion it will lead to an explosion,” political analyst Jihad Harb said.
Abbas cut off relations with the US administration after President Donald Trump declared the disputed city of Jerusalem Israel’s capital in December 2017.
The right-wing Israeli government, strongly backed by the US, has since sought to squeeze Abbas.
After a deadly anti-Israeli attack last month, Prime Minister Benjamin Netanyahu said he would withhold $138 million (123 million euros) in Palestinian revenues over the course of a year.
Israel collects around $190 million a month in customs duties levied on goods destined for Palestinian markets that transit through its ports, and then transfers the money to the PA.
Israel said the amount it intended to withhold was equal to what is paid by the PA to the families of prisoners, or prisoners themselves, jailed for attacks on Israelis last year.
Many Palestinians view prisoners and those killed while carrying out attacks as heroes of the fight against Israeli occupation.
Israel says the payments encourage further violence.
Abbas recently accused Netanyahu’s government of causing a “crippling economic crisis in the Palestinian Authority.”
The PA also said in January it would refuse all further US government aid for fear of lawsuits under new US legislation targeting alleged support for “terrorism.”

Finance Minister Shukri Bishara announced earlier this month he had been forced to “adopt an emergency budget that includes restricted austerity measures.”
Government employees paid over 2,000 shekels ($555) will receive only half their salaries until further notice.
Prisoner payments would continue in full, Bishara added.
Nasser Abdel Karim, a Ramallah-based economics professor, told AFP the PA, and the Palestinian economy more generally, remain totally controlled by and reliant on Israel.
The PA undertook similar financial measures in 2012 when Israel withheld taxes over Palestinian efforts to gain international recognition at the United Nations.
Abdel Karim said such crises are “repeated and disappear according to the development of the relationship between the Palestinian Authority and Israel or the countries that support (the PA).”
Israel occupied the Gaza Strip and the West Bank, including now annexed east Jerusalem in the Six-Day War of 1967 and Abbas’s government has only limited autonomy in West Bank towns and cities.
“The problem is the lack of cash,” economic journalist Jafar Sadaqa told AFP.
He said that while the PA had faced financial crises before, “this time is different because it comes as a cumulative result of political decisions taken by the United States.”
Abbas appointed longtime ally Mohammad Shtayyeh as prime minister on March 10 to head a new government to oversee the crisis.
Abdel Karim believes the crisis could worsen after an Israeli general election next month “if a more right-wing Israeli government wins.”
Netanyahu’s outgoing government is already regarded as the most right-wing in Israel’s history but on April 9 parties even further to the right have a realistic chance of winning seats in parliament for the first time.
Israeli-Palestinian peace efforts have been at a standstill since 2014, when a drive for a deal by the administration of President Barack Obama collapsed in the face of persistent Israeli settlement expansion in the West Bank.