$470 billion trade war looms over OECD's optimistic global outlook

OECD urges world to play by trade rules as tariff row rages

This is up from an earlier projection of 1.2%, but is the weakest in the G20. Trade protectionism, however, remains a "key risk" to the world economy, according to the report.

The Paris-based organisation said the world economy was on course to expand at an annual pace of 3.9% over the next two years.

It credited tax cuts in the U.S., the world's largest economy, for much of the upgrade - though the global forum warned that protectionist policies were a big risk factor in the forecast. That was higher from a November forecast of 1.2 percent due to the broader global improvement.

The OECD blamed the UK's position on high inflation dampening consumer demand and continued uncertainty about Brexit.

But while it also revised slightly upwards its expectations for the United Kingdom economy - to growth of 1.3% during 2018 - it said Brexit uncertainty would continue to weigh on performance.

"Backed by the global trade recovery, minimum wage hike, and household income expansion, South Korea's economic growth will remain at 3 percent in 2018-2019", the OECD report said, retaining its former forecast for Asia's fourth-largest economy.

"Growth is steady or improving in most G20 countries and the expansion is continuing", said OECD acting chief Economist Alvaro Pereira, "[But] an escalation of trade tensions would be damaging for growth and jobs".


"We should also make full use of the help available from other markets, of other investors, of other scientists, of other technologies to complement our own", he said.

"A lot of investment happens in London, it doesn't happen in many other areas".

Mr Pereira said global growth would be led by a recovery in investment, while an increase in trade volumes of 5.2% in 2017 was expected to continue in 2018.

The European Commission vowed to retaliate if hit by the tariffs.

"Safeguarding the rules-based worldwide trading system is essential to prevent the longer-term harm to growth prospects that could arise from a retreat from open markets", it said.

"Governments should avoid escalation and rely on global solutions to resolve excess capacity in the global steel industry".

A full-blown trade war could cost the global economy US$470 billion by 2020, according to analysis by Bloomberg Economics.

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