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OECD forecasts stronger global growth, flags Italy uncertainty, trade risks

The Organisation for Economic Co-operation and Development said trade tensions pose risks for the otherwise strengthening global economic expansion, while the political uncertainty in Italy threatens growth in the eurozone.

According to the OECD's latest outlook report, the world economy is expected to grow by 3.8% in 2018 and 3.9% in 2019, up from 3.7% last year.

Meanwhile, GDP expansion in the euro area is forecast to slow to 2.2% this year and 2.1% in the next, from 2.6% in 2017.

"Brexit and policy uncertainty in Italy could add pressures to the expansion in the euro area," said OECD interim Chief Economist Álvaro Pereira.

The OECD projected the Italian economy to grow 1.4% in 2018 and 1.1% in 2019, down from 1.6% in 2017. While the forecast did not incorporate possible policy changes by the next government, the OECD warned that "policy uncertainty could have an impact on the economic expansion."

Italy should prioritize infrastructure and anti-poverty programs to boost growth and address its social divide, the OECD said. The taxation system should be reformed to reduce rates for low-income earners without diminishing tax revenues, the organization added in its report.

Trade tensions

Pereira said the stronger global growth prospects are supported by monetary and fiscal policy, as well as a rebound in investment and in world trade.

But as the trade row between the U.S. and China continues, a further escalation of tensions "might significantly affect economic expansion and disrupt vital global value chains," Pereira warned.

The OECD said U.S. economic expansion would accelerate to 2.9% in 2018 from 2.3% last year, before easing to 2.8% in 2019. Meanwhile, Canada's growth will likely fall to 2.1% this year from 3.0% in 2017, before improving to 2.2% next year.

The U.K. is also forecast to have slower GDP growth at 1.4% this year and 1.3% in the next, compared to 1.8% in 2017.

Slower economic growth rates are projected for three other G7 nations through next year. In both 2018 and 2019, the German, French and Japanese economies are expected to grow 2.1%, 1.9% and 1.2%, respectively.