Remarks by Angel Gurría
15 October 2019, Santiago de Chile
(as prepared for delivery)
Clouds have been gathering over the global economy and the horizon is only getting darker. In our latest Interim Economic Outlook, we revised down our forecasts for nearly all major economies and now project global growth to be at 2.9% this year and barely reach 3% in 2020. These would be the weakest growth rates since the global financial crisis.
What is to blame? First and foremost, the high uncertainty created by the escalation of trade disputes is having a corrosive effect on confidence and investment. Global trade volumes contracted in the second quarter and industrial production has collapsed. The surge in trade restrictions has been disrupting value chains and companies have been putting their investment plans on hold leading to a sharp drop in global investment growth over the past year, with for instance aggregate investment growth falling in the G20 economies, from an annual rate of 5% at the start of 2018 to only 1% in the first half of 2019. This will mean less activity, fewer jobs and reduced wage gains.
On top of this, there are growing fragilities in the financial system, which could amplify the effects of further shocks. The large amounts of low-quality debt are particularly worrying: to give but one example, 500 billion USD of corporate bonds were issued just above junk last year worldwide, so bad news could trigger a cascade of downgrades and steep losses for investors with toxic feedback loops onto the real economy.
What is perhaps most worrying is that, with investment being put on hold, this period of high economic uncertainty will have long lasting impact on productivity gains, potential output of our economies and trend growth, so that the global low-growth environment is now threatening to become entrenched and structural. Such developments will only make more salient and pressing the challenge of widening inequalities, with the richest 10% owning 85% of global wealth and the bottom half less than 1%. This risks fostering further popular discontent and nourishing populism, protectionism and parochialism.
What we need is precisely the opposite. We need cooperation to find a positive way forward on trade. Cooperation to jolt the global economy out of a severe downturn if things keep worsening. Cooperation to grow much greener and reach the increasingly difficult to attain Paris climate targets. And cooperation to press forward on a more level playing field, including on international taxation.
In this area, we have already achieved much, with for example governments having, in anticipation of the start of automatic exchange of information, collected over 95 billion EUR in additional tax which then led to exchanges of fiscal information for 47 million financial accounts with a value of assets close to 4.9 trillion EUR.
A high priority of the OECD/G20 Inclusive Framework on BEPS, whose work most of you are contributing to, is now to achieve a consensus-based solution by 2020 to the tax challenges arising from the digitalisation of the economy.
The Inclusive Framework agreed to explore a long-term solution along two pillars. A first pillar aims to redefine the allocation of taxing rights. The second pillar complements the first and aims to protect the corporate tax base by helping countries ensure that a minimum level of tax is paid. The OECD Inclusive Framework Secretariat has released a proposal for public consultation that builds on the commonalities of previously proposed solutions under Pillar 1.
The first public consultations on both pillars will be held on 21-22 November. There are also many opportunities for you to discuss this right here in the region – not only at the FMP. On 19-21 November, for example, the ADB and the OECD are organizing in Manila a Regional Meeting on Tax and Digitalisation for Asia and Pacific countries.
Finally, I am pleased to highlight the reports you asked us to deliver, in the CEBU Action Plan, on ways to strengthen capacity in tackling tax crimes in APEC Economies but also our other FMP agenda deliverables on infrastructure, disaster financing and financial inclusion.
Let me end by congratulating Minister Larraín and his team for the successful steering of this year’s FMP and Malaysia for being the next APEC host in 2020. The OECD is and will remain committed to continue supporting APEC policy discussions and positively contribute to the impressive changes in the region.