Donald Trump’s economic plans received strong backing from the Organisation for Economic Co-operation and Development on Monday, with the international organisation predicting the president elect’s infrastructure plans would increase US growth, combat inequality and energise discouraged workers.
In contrast to its support for US policy, the Paris-based OECD’s twice-yearly economic outlook is cool on the UK outlook, marking down Britain’s economic prospects on the view that the UK is heading for a hard-Brexit in 2019.
Equity markets have already rallied on the expectation of a boost to US growth from looser fiscal policy and the OECD’s support marks the first leading international organisation to validate financial market bets.
The OECD’s support highlights how views of US prospects have altered over the past two months. Before the US election, international financial institutions, such as the International Monetary Fund and World Bank, feared a Trump presidency and officials discussed him as a sort of Voldemort for the global economic order — like the villain in Harry Potter, his name spoken only in hushed tones and behind closed doors.
Having long been a staunch supporter of budgetary prudence, the OECD has performed a U-turn over the past year, as it has become concerned that if governments do not use low interest rates to boost capital investment, advanced economies will become stuck in a low growth trap.
Catherine Mann, chief economist of the OECD said: “We are concerned about the extent to which asset prices are underpinned by low interest rates — so monetary policy has been over-burdened and there is now a premium on getting fiscal levers pulled in the right way”.
The latest OECD forecasts in its economic outlook show improvements to growth forecasts for 2017, which are directly caused by the organisation’s positive view of US tax and public spending policy after the election.
The US is expected to be the best performing large advanced economy in 2017, growing 2.3 per cent with the eurozone growing 1.6 per cent, 1.2 per cent in the UK and only 1 per cent in Japan.
“[The Trump fiscal effect] is an important part of our projection,” Ms Mann told the FT. “We don’t think anything will happen over the next six months, but we expect [a stimulus worth] 0.25 to 0.5 per cent of national income in the second half of 2017, mostly spent on public infrastructure and 1 per cent or so in 2018 coming from tax cuts.”