The OECD has warned of further risks to the global economy in their biennial economic report. With a title of ‘The global outlook is unstable’, there is little doubt as to the OECD’s opinion of the state of the world’s economy at the moment.
Global GDP has fallen steadily in the past two years, from 3.7% in 2017 to 2.9% this year – the lowest since the financial crisis. The OECD predicts global GDP will remain at 3% for the next two years.
The report said that “Global trade is stagnating and is dragging down economic activity in almost all major economies.” Political uncertainty is blamed; with trade conflicts, geopolitical tensions and climate change specifically named.
The US-China trade war continues to go nowhere. Both sides seem to change their opinions on a whim, and real progress has been absent so far. Just this week Chinese officials have said the talks will continue, whilst at the same time berating a decision by the US House of Representatives to pass legislation to protect the rights of protesters in Hong Kong.
The UK and Germany narrowly avoided recession after reporting small growth for Q3 2019, but the figures showed how close it was. The UK economy grew by just 0.3% in Q3 2019, and Germany performed even worse at 0.08% - barely growing and just avoiding the second quarter of shrinkage needed for a recession.
The OECD also highlights the UK economy as ‘unusually uncertain’, with Brexit named as the main reason, and the upcoming general election also obscuring future fiscal policy. Even with a smooth transition from the EU, the OECD predicts growth in the UK will remain around 1% for the next two years. A ‘disruptive exit’ however would “significantly damage the economy”, exacerbating the effects of the weak global market.
The gold price has already shown the effects of this global instability, with the price in Sterling down £20 per ounce on Monday, before gaining £23 on Wednesday, and dropping another £10 at the time of writing. Despite US stock markets hitting record highs recently, the gold price is still holding near recent peaks. Although money is being poured into the stock markets, deficits are increasing, and some analysts are warning that the recent highs could be part of a bubble that’s about to burst.
Despite the slight cooldown in the gold price recently, instability will keep demand high, and prices strong. If the current instability causes further weakness, and drives economic growth closer to recession, then gold prices could begin to climb once more.