The Dow Jones Industrial Average looks set to open in the red today as the OECD issued a huge shock to the markets.
The think tank has dramatically slashed its global outlook, blaming the US-China trade war and Brexit for choking growth. It predicts that global economic growth will slow to just 3.3 percent in 2019, down from 3.5 percent. The downgrade is the second in three months from the OECD.
Explaining the slashed forecast, the think tank blamed:
“High policy uncertainty, ongoing trade tensions, and a further erosion of business and consumer confidence are all contributing to the slowdown.”
After a poor performance yesterday, the Dow is taking another hit from the news, with futures pointing to a limp opening. After closing at 25,819, the Dow is trading at 13 points lower at 2,5806 at the time of writing. It’s also a warning sign for the long-term growth of the US markets.
Economic Growth Forecasts Crushed
The OECD’s stark warning to traders is part of a long-term reassessment. Not only does it lower forecasts in 2019, but it claims growth will stall at 3.4 percent in 2020.
The eurozone will take the biggest hit according to the report. The brutal downgrade from the OECD has halved Germany’s growth prospects in 2019, from 1.6 percent to just 0.7 percent. Italy and the UK are also on the receiving end of sharp downgrades.
The US is expected to hold up better through 2019. The report cuts US growth predictions by a relatively minor 0.1 percent to 2.6 percent.
OECD Blames Trade War and Brexit
The report highlights growing tensions around the world as a major disruptor of growth.
“The global economy is slowing and major risks persist, with growth weakening much more than expected in Europe. Economic prospects are now weaker in nearly all G20 countries than previously anticipated. Vulnerabilities stemming from China and the weakening European economy, combined with a slowdown in trade and global manufacturing, high policy uncertainty and risks in financial markets, could undermine strong and sustainable medium-term growth worldwide.”
The think tank’s top leading economist Laurence Boone actively calls on global leaders to work together to limit the damage to global markets:
“The global economy is facing increasingly serious headwinds. A sharper slowdown in any of the major regions could derail activity worldwide, especially if it spills over to financial markets. Governments should intensify multilateral dialogue to limit risks and coordinate policy actions to avoid a further downturn.”
How Will It Impact the Dow Jones?
Although the US economy is expected to hold up better than most in the coming years, the impact across the global markets can’t be ignored. The Stoxx Europe 600 index drifted 0.1 percent lower this morning when the report was released.
It also comes after China lowered its growth forecasts yesterday, foreshadowing the slowing growth of global economies. The ripple effect on the markets may not be immediate, but there are warning lights flashing.