A trade agreement between the United States and China is the most crucial determinant of the short term growth of growth in global investment and trade. This was opined by the secretary general of the Organisation for Economic Cooperation and Development (OECD) Angel Gurria.
“Yesterday, he (President Donald Trump) made a presentation at the Economic Club (in New York) and basically he said ‘Yes, maybe we’re close to a deal with China’ — we’re betting on that,” Angel Gurria said during a television interview.
“The rate of growth of trade has come down from 5.5% in 2017 to basically flat. In fact, maybe as we speak, trade is going negative, it’s contracting. Investment — as a consequence because of the uncertainty — went from 5% growth to about 1% growth now and it’s slowing down further. Therefore growth has dropped precipitously over a short period of time,” he said.
Its global forecast was cut by the OECD in September as the body predicted that the growth rate of the global economy for the entire of 2019 will be its slowest since the financial crisis in 2008-2009 and said that it expects growth rate of 2.9 per cent. The body predicted that the global growth will touch 3 per cent in 2020.
The September cut in forecast by the OECD was lower than the 3.2 per cent and the 3.4 per cent growth in global economy for 2019 and 2020 respectively that had been made buy it in May this year.
Gurria said that “if we continue to take decisions along the lines of more protectionism or more problems with trade etc, if there are more tensions, then the consequences can be even worse.”
The organization further warned in its “Interim Economic Outlook” that “global economy has become increasingly fragile and uncertain, with growth slowing and downside risks continuing to mount.” It also said that for both advanced and emerging economies, the economic prospects were weakening, “and global growth could get stuck at persistently low levels without firm policy action from governments.”
Currently, the outcome of the trade negotiations between the US and China will largely determine the forecast of global growth.
Both US and China could remove some existing tariffs on billions of dollars’ worth of each other’s imports id the two largest economies of the world could come to an agreement on the so called ‘phase one’ of a trade deal. But if the two sides do not manage to come to an agreement on trade, it is likely that the Trump will implement pre-announced additional tariffs on Chinese imports on December 15, which in turn could attract retaliatory tariffs from China and derail the trade negotiations further.
A game changer for the positive of negative direction of global growth could be a trade deal between the US and China, agree economists and strategists. Arend Kapteyn, the global head of Economics and Strategy Research at UBS, said that “we can’t see them” when he was asked if he could see any green shoots in parts of the global economy right now.
“Our narrative is that we’re running at very, very low global growth levels … and it doesn’t get better for the next three quarters and actually we’re going to hit a bit of an air pocket in the first half of next year because we’re still seeing these existing (trade) tariffs feeding themselves into the data,” he said.
(Adapted from CNBC.com)