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Think-tank expects Trump administration to cut taxes on business and households

Mon, Nov 28, 2016, 10:15

The latest forecast from the OECD is slightly less pessimistic about the outlook for Britain than it was in September




The OECD has downgraded its growth projections for the Republic next year to just 3.2 per cent. The Organisation for Economic Co-operation and Development said in its twice-yearly economic outlook in June that it expected GDP to grow by 3.4 per cent next year – but it has now revised that estimate downward.

It also says global growth will pick up faster than previously expected in the coming months as Donald Trump administration’s planned tax cuts and public spending fire up the US economy. The OECD estimates that global growth will accelerate from 2.9 per cent this year to 3.3 per cent in 2017 and reach 3.6 per cent in 2018.

The Paris-based organisation is slightly more optimistic about the US outlook, with a forecast for growth next year of 2.3 per cent, up from 2.1 per cent in its last set of estimates dating from September. US growth, it says, will pick up further in 2018 to reach 3 per cent, the highest rate since 2005, as the incoming Trump administration cuts taxes on business and households and embarks on an infrastructure investment programme.

That would in turn drive the unemployment rate in the world’s biggest economy down, from 4.9 per cent this year to 4.5 per cent in 2018, the OECD estimates. As the US labour market becomes increasing tight and wages rise, the OECD forecasts inflation will increase from 1.2 per cent in 2016 to 2.2 per cent in 2018, prompting the Federal Reserve to raise interest rates gradually to 2 per cent by the end of 2018. A resurgent US economy would help offset softness elsewhere in the world.

The OECD is slightly less pessimistic about Britain’s outlook than it was in September, as the central bank has helped ease the economic impact of the country’s decision to leave the European Union. Britain’s economy is seen growing by 2 per cent this year, revised up from 1.8 per cent previously, although the rate would be halved by 2018.


China, which is not a member of the 35-country OECD, is seen to be slowing from growth this year of 6.7 per cent to 6.4 per cent in 2017, both slightly better than previously expected.

Stronger US import demand is seen as offsetting weak Asian trade for Japan, where growth is revised, up to 0.8 per cent for this year from 0.6 per cent previously and lifted to 1 per cent in 2017 from a 0.7 per cent estimate in September. The euro area’s outlook is also slightly brighter despite uncertainties about Britain’s future relationship with the continent. Boosted by loose monetary policy, euro zone growth is seen at 1.7 per cent this year and 1.6 per cent in 2017, with both years revised slightly higher from the OECD’s September estimates. – (Reuters)