Trump can make or break global growth hopes

LONDON: Donald Trump has the power to make or break a revival in world growth. That's the upshot of the latest forecasts from the Organisation for Economic Co-operation and Development.

The club of well-off nations reckons the US president-elect's plans could help lift global GDP growth to 3.6 percent in 2018.

The problem is that his threats of protectionism risk cancelling out the benefits.

While Trump's inauguration is less than two months away, any assumptions about what the former reality-TV star will do once he is in the Oval Office involves guesswork.

That didn't prevent the OECD from trying to factor his plans into its projections.

It reckons that reforms to personal and corporate taxes, combined with extra government spending, could add 1.75 percentage points to American GDP by 2018.

Add ongoing fiscal stimulus in China, and a modest boost to spending in Europe, and global economic growth could return to levels not seen since the beginning of the decade.

Stimulus need not be an irresponsible splurge. Countries can take advantage of very low interest rates to give their economies a jolt without undermining their finances.

The OECD says that, on average, its members have scope to spend an extra 0.5 percent of GDP for three to four years while keeping debt-to-GDP ratios stable.

Sensible spending on infrastructure and education could also help to make workers more productive - hopefully easing some of the economic anxieties that helped to propel Trump to the White House.

There are plenty of threats to this scenario, though. For one, there's little assurance that any extra borrowing will be spent wisely.

Trump's proposed tax cuts would mostly benefit the well-off. Meanwhile, a chunk of China's stimulus has so far been indirectly spent on propping up loss-making state-owned enterprises.

Protectionism is an even bigger risk. If Trump follows through on campaign promises to impose tariffs on Chinese imports and renegotiate the North American Free Trade Agreement, he could trigger a trade war that would cancel out any benefits from a stimulus. Financial markets are so far largely ignoring that risk.

But the assumption that America's electoral earthquake will leave the foundations of global free trade unshaken is as bold as forecasts of higher growth.