Global trade is likely contracting and we’re now ‘betting’ on a US-China deal, OECD chief says

Organisation for Economic Co-operation and Development (OECD) General Secretary Angel Gurria gestures as he addresses a meeting at OECD headquarters in Paris on June 7, 2017.

ERIC PIERMONT | AFP | Getty Images

Investment and trade growth at the moment are reliant on a deal between the U.S. and China, the secretary general of the Organisation for Economic Cooperation and Development (OECD) told CNBC Wednesday.

“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 told CNBC's Charlotte Reed in Paris.

“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.

In September, the OECD cut its global growth forecasts, predicting that the global economy will see its weakest growth in 2019, predicting growth of 2.9%, since the financial crisis in 2008-2009. It predicted 3% growth in 2020.

The forecasts were down from its May outlook when it predicted the global economy would grow 3.2% this year and 3.4% in 2020.

Gurria told CNBC 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.”

Then, in its “Interim Economic Outlook,” the organization warned that “global economy has become increasingly fragile and uncertain, with growth slowing and downside risks continuing to mount.” It said economic prospects were weakening for both advanced and emerging economies, “and global growth could get stuck at persistently low levels without firm policy action from governments.”

Green shoots?

Global growth forecasts are largely dependent right now on the outcome of trade talks between the U.S. and China.

If both sides can agree the first phase of a trade deal, that could see both sides remove some existing tariffs on billions of dollars' worth of each other's imports. If talks cannot produce an agreement, both China and the U.S. are set to impose even more tariffs on December 15.

The signs are not looking that positive with reported hurdles . Speaking to the Economic Club of New York on Tuesday, U.S. President Donald Trump renewed his trade attack on China, calling the nation “cheaters.” Trump said that the first phase of a trade deal “could happen soon” but threatened to raise tariffs on Chinese goods “very substantially” if a deal doesn't happen, Reuters reported.

Economists and strategists tend to agree that a trade deal would be a game changer for the positive of negative direction of global growth. Asked if he could see any green shoots in parts of the global economy right now, Arend Kapteyn, the global head of Economics and Strategy Research at UBS, told CNBC's Joumanna Bercetche that “we can't see them.”

“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 Wednesday.

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“If there is no tariff rollback, you're going to see a hit to the retail sector in the first half of next year … If there is a deal and it's much more comprehensive and the (December) tariffs don't happen, we will be changing the forecasts and we would expect to start seeing green shoots but we're not seeing it yet,” he said.

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