G20 Finance Ministers’ and Central Bank Governors’ Meeting
Session 1: Global Economy and Growth Framework (working dinner)
Remarks by Angel Gurría,
14 April 2016
(As prepared for delivery)
Dear Ministers and Central Bank Governors:
Despite some welcome rebound in financial markets, global growth prospects remain weak. The main challenges facing G20 policymakers of low growth, sluggish trade, sub-par investment, weak productivity gains, high unemployment and growing inequality – not to mention a number of remaining downside risks – are unresolved.
The OECD expects global growth of around 3% this year – the same as in 2015 and the lowest in the past five years. We see only a modest growth pick-up in 2017, far below what it should be. The outlook for investment, trade, and productivity growth all remain disappointing.
Ministers and Governors, you made a very important commitment in Shanghai to “use all policy tools – monetary, fiscal and structural – individually and collectively” to achieve G20 goals.
Since then, there have been welcome actions to support demand by some G20 countries: further monetary easing by the ECB and China’s budget plans stand out. Other countries have eased monetary conditions, announced supplementary budgets and/or approved spending plans containing new investments.
However, policymakers more generally are still struggling to keep up with the weakening of demand prospects and with how to kickstart a stronger recovery.
To make matters worse, there has been less action on structural reform. The OECD’s 2016 Going for Growth report, launched with Lou Jiwei in Shanghai in February, showed a slowdown in the pace of structural reform in recent years, just when we need a pick-up! When considering the recommendations for structural reforms in G20 countries in past issues of Going for Growth, too little has been done and the uptake of our recommendations has been limited, such as in innovation and R&D policy, efficiency of public spending, tax structure and product market regulations.
In the coming months, the OECD and the IMF will again assess progress towards the “2-in-5” objective for 2018. Without a stronger effort on implementation, there is a good chance that the G20 will have fallen short. The outlook is weaker than it was at Brisbane in 2014.
The Chinese Presidency is therefore right to enhance G20 structural reform ambition by proposing policy issues such as innovation for the G20 agenda. The OECD supports the nine structural reform priorities agreed by G20 members and we are happy to develop further the G20 structural reform principles as well as policy and outcome indicators.
The enhanced G20 reform agenda must lead to an ambitious, action-oriented Hangzhou Action Plan. Let me highlight two areas on which to focus G20 actions:
First, since last November, the OECD called for a collective effort to boost public investment, notably in infrastructure. All G20 countries can benefit. For instance, the level of access and uptake of digital technologies, crucial for innovation, differs widely across and within G20 countries. Even among advanced economies, the rate of fibre connection in total broadband subscriptions ranges from over 65% in leading countries to less than 1% in others, showing the clear need for further infrastructure investment.
Naturally, the effects would be greater if all G20 countries simultaneously adopt structural reform measures to create better conditions for investment.
There are six trillion dollars of sovereign debt trading at negative yields. With record-low long-term interest rates in many advanced economies, the case for boosting public investment becomes even more evident!
Second, trade growth remains sluggish. The dramatic drop of the trade to GDP growth ratio from 2 to 1 will result in lower productivity. And lower productivity is something we simply cannot afford! In recent years, average labour productivity growth in OECD countries slowed from an annual rate of 1.8% between 2001 and 2007 to just 0.71% between 2007 and 2013. And slowing productivity is feeding into rising or persistently high inequalities of income, wealth and opportunity between individuals. We must therefore redouble our efforts to reignite global trade and lift productivity.
Fully ratifying and implementing the Bali Trade Facilitation Agreement as well as reducing trade costs and regulatory barriers, especially for services – that are higher compared to goods and have declined only marginally over the past 20 years – are two critical areas for action.
The OECD will provide a detailed assessment of trade and investment policy priorities to inform your revised growth strategies for our next meeting in July.
Let’s work together to deliver on your Shanghai statement and activate all 3 policy levers – monetary, fiscal and structural – to achieve stronger, more sustainable and inclusive growth. The OECD stands ready to support you!