China is trying to engineer a soft landing in the face of higher U.S. tariffs, and its fiscal policies will help the economy eventually, according to Laurence Boone, the Chief Economist of Organization for Economic Cooperation and Development (OECD).
The OECD predicted in its latest Economic Outlook on Wednesday that China's GDP growth would slow from 6.6 percent this year to 6.3 percent in 2019.
The organization said its prediction was based on signs in industrial production, profits and revenues.
The report showed that China's trade growth has remained relatively strong while the government tries to maneuver in the face of higher U.S. tariffs. “China is trying to engineer a soft landing,” Boone said.
Meanwhile, the report indicated that Chinese fiscal policy remained supportive while monetary conditions were being eased to support economic activity.
Boone considered the action challenging but possible, with the chief economist also underscoring China's fiscal and monetary policies.
“It's actually the challenging time between going through the deleveraging of the non-financial corporate sector to ensure financial stability, which is a good thing," said Boone, adding that China also faced balancing "monetary and fiscal policy to support consumption and investment, but at a lesser pace than before. So it is like launching a plane in a turbulent area -- it's challenging but it's possible."
Laurence Boone, the Chief Economist of the OECD, in an interview with CGTN's Global Business. /CGTN Photo
As for the global economy, the OECD predicted that global GDP growth has settled at around 3.7 percent this year, and for 2019 and 2020, global economic growth will slow to 3.5 percent.
“What we are seeing is a slowdown which is quite generalized throughout the world economy. It's mostly [because of] emerging market economies in 2018," said Boone, highlighting turbulence in Turkey, Argentina and Brazil.
The report also warned that a full-blown trade war and the resulting economic uncertainty could continue to knock off a big portion of growth in the next three years.
It indicated that new restrictive trade policy measures have resulted in marked changes in trade flows and prices in some targeted sectors, particularly in the United States and China.
Policy announcements are also affecting business sentiment and investment plans, especially in manufacturing, and have added to uncertainty.
“If there is a shock for example due to further trade tensions, then obviously this would have impact on China demands. And the impact on China demands would impact on other emerging economies through trade. And it would have consequences for the global economy if it's shaken confidence beyond China,” she warned.
Despite the current trade tensions, the U.S. economy is expected to fare better than other major economies.
The OECD expected U.S. GDP growth to be at 2.9 percent in 2018, the same estimate as in the September report. And the forecast for 2019, which stood at 2.7 percent, has not been revised either.
The report indicated that U.S. monetary policy will tighten, while any monetary boost is going to fade.
“There is little monetary policy room even in the U.S., rates are way below what they are usually before a slowdown,” Boone noted, and advised the best way out of this is "fiscal coordination."
The report stressed again that any significant further restraints on imports, including raising tariffs to 25 percent on imports from China, would raise prices and lower GDP growth further. Therefore, Boone advised countries to act within the international rules-based system.
The economist warned that trade tensions have already shaved off between 0.1 and 0.2 percentage points of global GDP growth.
If tensions escalate, they could bite off an additional 0.2-0.3 percentage points from U.S. and China growth.
“So now we need to get back to discussing and cooperating within the international rule-based system.” Boone told CGTN.
(CGTN's Xia Cheng also contributed to the story)