PARIS: Trade tensions are threatening the best global economic growth outlook in seven years, the OECD said on Tuesday, adding that four US rate rises are likely this year as tax cuts stoke the world’s biggest economy while Brexit will drag on Britain.

While broadly more optimistic than only a few months ago, the OECD warned a trade war could threaten the outlook, and forecast that UK growth would lag all G20 countries due to Brexit uncertainties.

Updating its outlook for the G20, the OECD, which groups 34 of the world’s leading economies, raised its global growth forecast for 2018 and 2019 to 3.9 per cent - the highest since 2011 - from a previous estimate of 3.6pc for both years.

The higher forecast was in part due to expectations that US tax cuts would boost economic growth there, it said.

“We think the stronger economy is here to stay for the next couple of years,” acting OECD chief economist Alvaro Pereira told Reuters.

“We are getting back to more normal circumstances than what we’ve seen in the last 10 years.”

Rebounding global business investment would keep global trade growth at about 5pc this year, the OECD forecast.

However, it said the global economy was vulnerable to an eruption of trade tensions after the Trump administration imposed import tariffs on steel and aluminium, a move that is expected to prompt retaliation from Europe and others.

“This could obviously threaten the recovery. Certainly we believe this is a significant risk, so we hope that it doesn’t materialise because it would be fairly damaging,” Pereira said.

FISCAL EASING: The OECD forecast the US economy would grow 2.9pc this year and 2.8pc in 2019, with tax cuts adding 0.5-0.75 percentage points to the outlook in both years.

Against that backdrop, the Federal Reserve would probably have to raise interest rates four times this year as inflation picks up, Pereira said. Previously the OECD had estimated three hikes would suffice this year.

With tax cuts boosting the economy this and next year, the OECD forecast the upper bound of the target federal funds rate could reach 3.25pc by the end of 2019 from 1.5pc currently.

Britain was seen missing out on the global upturn, lagging all other G20 countries with growth of only 1.3pc this year. That was higher from a November forecast of 1.2pc due to the broader global improvement.

With Britain due to leave the European Union next year, its economic growth was seen easing to 1.1pc in 2019, unchanged from the OECD’s November estimate.

The OECD said high inflation would eat into UK household income while business investment would slow in the face of uncertainty over Britain’s future relationship with the EU.

Published in Dawn, March 14th, 2018