OECD Says World Has Bigger Problems than a Potential Recession!

The Paris-based Organization for Economic Cooperation and Development (OECD) is doubling down on repeated warnings that U.S./China tensions, weak investment, and disproportionate trade flows are nothing more than the tip of the asymptomatic iceberg. Those remain major concerns, but they also point to even greater systemic challenges emanating from, for example, climate change, technology and the fact that the trade war is simply part of a larger shift in the global order. Laurence Boone, Chief Economist for OECD, shared concerns that the world could continue to suffer in the coming decades, if leaders continue to rely, almost exclusively, on short-term fiscal and monetary fixes. Rather than tweaking and hoping for a cyclical upswing, Boone suggests that governments revolutionize policies and particularly, how they invest. OECD sees global growth stuck at 2.9% this year and next, and rising slightly to 3% in 2021. Meanwhile, it lowered its U.S. forecast from 2.4% in 2019 to 2.3% and left 2020 at 3%.

Appropriate concern about deep-seated problems in the global economy is constantly being moved to a back burner, due to temporary positively received adjustments within financial markets. OECD said the risk of trade tension escalation is a “serious concern.” However, Boone said, “The biggest concern is that the deterioration of the outlook continues unabated, reflecting unaddressed structural changes more than any cyclical shock…It would be a policy mistake to consider these shifts as temporary factors that can be addressed with monetary and fiscal policy: they are structural.”

It is certainly disconcerting to realize that uncertainties could linger, even if recent impositions and restrictions were to be reversed. Such an occurrence would weigh even more heavily on business investment growth in major advanced economies, which the OECD already expects to slow to about 1.25% a year, from nearly 2% last year. But they also clearly suggested that the entrenched trade and investment challenges mean governments must make deeper changes beyond simply rolling back tariffs of the last two years. This could mean updating global rules and reducing subsidies with harmful effects on trade. Further, they suggested a profound reconsideration of environmental policies amid epic Australian brush fires and flooding in Venice and other major low-lying cities, scientifically linked to climate change. Beyond how climate events harm the economy, how governments regulate and respond is also having an impact. Without clear policy on issues like the carbon tax, the delays to business investment have “dire consequences for growth and employment,” Boone said.

Although fiscal stimulus can provide a short-term boost for investors, OECD urged the focus to be pointed at the long term. “The situation remains inherently fragile, and structural challenges are daunting,” Boone said. “There is a unique window of opportunity to avoid a stagnation that would harm most people: restore certainty and invest for the benefit of all.” Governments are encouraged to do their part, but individual investors should be quick to realize that history acknowledges precious metals to be one of the best financial tools available to protect assets, as well as provide long-term growth. Today’s still low prices are just another great reason to stock up on physical gold, silver, and other precious metals.