- About three-quarters of OECD members are basing their fiscal policy on some kind of stimulus, Secretary-General Jose Gurria told CNBC.
The global growth story is no longer new, but the broad-based economic recovery underway a decade after the 2008 financial crisis still needs some propping up from fiscal policy, according to the head of the Organization for Economic Cooperation and Development (OECD).
About three-quarters of OECD members are basing their fiscal policy on some kind of stimulus, Secretary-General Jose Gurria told CNBC's Joumanna Bercetche on Tuesday during the organization's yearly forum in Paris. This means that policy is driving "a good part" of the growth, he said.
On the other hand, monetary policy remains historically loose in many OECD countries, particularly across Europe and Japan.
"So you're having a situation where this is not yet on its own," said the secretary-general, a Mexican economist and diplomat who negotiated the North American Free Trade Agreement (NAFTA) in 1994. "This is not yet moving by itself. It still needs some props, still needs some crutches. Policy crutches."
"Perhaps less obvious than before, but still it means that if you would move the stimulus, perhaps this would flatten out and it means therefore that we just have to insist on the structural policy side," he added.
A combination of low interest rates, public spending and tax cuts, particularly in the U.S. for the latter, fall into the category of these fiscal "crutches," Gurria said. The OECD in March projected global gross domestic product (GDP) growth to hit around 4 percent this year, after reaching 3.7 percent in 2017. Four percent was the global rate of growth before the financial crisis hit.
The growth has put pressure on governments to start unwinding their decade-long monetary easing programs, slowly bringing interest rates back up to prevent an overheating of the economy. Some fear that a tightening process too soon or too quickly could threaten that long-awaited growth, while at the same time many market analysts say higher rates are needed to bring policy back to normal and create room to bring rates back down in the event of another recession.
Alongside a brighter growth outlook is the onset of trade tensions, heralding unexpected risk after President Donald Trump this spring launched a series of tariff announcements on allies and competitors alike. But Gurria wasn't particularly fazed by the threat of a trade war.
"We see that there are trade tensions," he said. "And there has still not been a single shot fired in the sense that it is a lot of talk, but no tariffs actually imposed." World leaders are currently in negotiations in attempts to avert the tariff impositions.
In March and April, Trump proposed sweeping tariffs on steel and aluminum imports worldwide, mostly in an effort to fight overcapacity in foreign (namely, Chinese) steel production that pushed down prices and cut the competitiveness of U.S. steel producers. China produces about half the world's steel, and production in both China and the U.S., as well as in other major producers like India and Japan, saw increases in March of this year.
For Gurria, punishing the consequences of overcapacity rather than addressing the overcapacity itself will get nations nowhere.
"I believe very strongly that if we do not go to the substance of the problem, which is overcapacity itself, rather than fighting only the consequences of that, then we will not make enough progress," he said.
The OECD has 35 member states, most of whose economies are considered high-income and fully developed. Gurria, a longtime leader in developing national fiscal policy, served as Mexico's secretary of finance in the late 1990s as well as president and CEO of the National Development Bank of Mexico and the Foreign Trade Bank. He was also on the external advisory group of the Inter-American Development Bank, and was credited for numerous spending cuts that led to Mexico's economic stabilization during his tenure as finance secretary. Gurria has been at the OECD's helm since 2006.