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OECD raises global growth forecasts, but says trade tensions threaten outlook

The new U.S. tariffs on steel and aluminum imports and possible retaliation from other countries could dampen the otherwise improving prospects for higher global economic growth in 2018 and 2019, the Organisation for Economic Co-operation and Development said in its latest outlook report.

The Paris-based think tank raised its global GDP growth forecasts to 3.9% for both this year and the next, from previous estimates of 3.7% and 3.6%, respectively, in November 2017.

New tax cuts and spending increases in the U.S., along with additional fiscal stimulus in Germany, drove the revisions to the global growth prospects, the OECD said, adding that stronger investment, trade and employment were making the economic expansion more broad-based.

"Growth is steady or improving in most G-20 countries, and the expansion is continuing," said Alvaro Pereira, acting chief economist of the OECD.

However, the OECD warned that a rise in protectionism and tit-for-tat trade actions following the latest U.S. tariffs pose risks to global growth.

"In this environment, an escalation of trade tensions would be damaging for growth and jobs ... Safeguarding the rules-based international trading system is key," Pereira said, urging countries to rely on global solutions to resolve excess capacity in the global steel industry.

The U.S. economy was expected to grow 2.9% in 2018 and 2.8% in 2019, up from earlier forecasts of 2.5% and 2.1%, respectively, the OECD said. The projections for Canada's GDP growth in 2018 and 2019 were both raised by 0.1 percentage point to 2.2% and 2.0%, respectively.

The OECD lifted its growth forecasts for the eurozone by 0.2 percentage points to 2.3% this year and 2.1% in the next. It also raised its 2018 growth estimate for the U.K. economy to 1.3% from 1.2%, and maintained the projected 1.1% expansion for 2019.

Japan's economy was forecast to expand 1.5% in 2018 and 1.1% in 2019, up from prior estimates of 1.2% and 1.0% growth, respectively. The OECD revised up its 2018 growth forecast for China to 6.7% from 6.6% and kept unchanged the estimated 6.4% expansion for next year.