Economic nationalism, volatility threatens modest recovery: OECD

A modest recovery underway in the global economy is at risk from economic nationalism and diverging central bank policies, the OECD said on March 7 as it forecast only a slight pick-up in growth.

The Paris-based Organization for Economic Cooperation and Development estimated global economic growth would run at 3.3 percent this year before reaching 3.6 percent in 2018, unchanged from its last estimates in November.

OECD chief economist Catherine Mann said that higher interest rates in the United States could unleash damaging volatility on financial markets for some borrowers while potentially pushing the dollar higher.

"The economic nationalism is a much bigger wildcard because we don't know how the language translates into policy at this point," Mann told Reuters as the OECD updated its outlook for major economies.

U.S. President Donald Trump's campaign promises last year to put "America first" in trade, and his calls for tariffs on imports from China and Mexico, caused consternation among the United States' major trade partners.

Though Washington was not alone in using nationalistic rhetoric, Mann said the OECD had estimated that a 10 percent increase in U.S. import costs would percolate through the economy and ultimately lift export costs by 15 percent.

Volatile times

The OECD said that with only a modest recovery in view in most countries, financial markets were becoming disconnected from economic reality as consumer spending and business investment remained weak.

With the U.S. Federal Reserve widely expected to steadily hike interest rates for some time, the OECD said that exchange rate swings could be expected.

That could put at risk emerging market borrowers...