Remarks by Angel Gurría, OECD Secretary-General, delivered at the Breakfast with Journalists on the Occasion of the Economic Outlook Launch
25 November 2014, Paris, France
(As prepared for delivery)
Ladies and Gentlemen,
Thank you for coming to this breakfast to discuss the forthcoming OECD Economic Outlook, which will be released later this morning. Before we start, I and the OECD’s Chief Economist, Catherine Mann, will provide you with a brief snapshot of the study, and how it ties to the recent G20 Summit.
The OECD Economic Outlook
Growth has again disappointed and our projections today are weaker than in the May Economic Outlook. We expect global growth to strengthen by 2016, but it will remain modest by past standards.
The Euro area and Japan are currently the two most worrying spots on the OECD map, with an expected pick-up in growth to 1.7 and 1 percent, respectively, in 2016. And this already assumes stronger policy support than is currently on the table. In the emerging world, China is experiencing a welcome slowdown to more sustainable growth rates of around 7%.
The outlook is subject to important risks. First, there are major risks associated with financial volatility as US interest rates are raised in the course of next year.
Second, the rapid credit growth in China in recent years could lead to a bumpy landing of the economy. A simulation in the Economic Outlook shows that a 2 percentage point drop in the growth of Chinese domestic demand would reduce global GDP growth by ½ percentage point after 2 years, hitting hardest countries like Japan, India and Russia that are most closely linked to the Chinese economy.
Third, there is a risk of a prolonged period of stagnation in the euro area if the policy response is too weak and confidence remains low. A simulation in the Economic Outlook shows that a decline in inflation expectations by 50 basis points combined with a worsening of financial conditions for firms and households could lower Euro area GDP growth by around ½ percentage point in 2015 and around 1 percentage point in 2016, bringing the expansion close to a standstill.
To avoid risks to growth, a stronger policy response is needed. While there is still scope for supportive monetary and fiscal policy, especially in the Euro Area, structural reforms are the main way forward.
The G20 Summit in Brisbane
On this point, there is some encouraging news from the G20 Summit in Brisbane. There may have been a lot of hype and scepticism around the Summit outcomes, but I can tell you that there were some real achievements.
First, the Australian Presidency accomplished a master-stroke in getting countries to commit to structural reforms to raise GDP by 2% by 2018. This is the first time there has been a “hard” commitment like this. An extra 2% might not sound like a lot, but it is the equivalent of adding Australia and New Zealand to the world economy over the next 5 years, on top of what would happen without this commitment.
The OECD was asked – together with the IMF – to “unpack” countries’ National Growth Strategies and their near 1000 policy commitments. And I can say: their level of ambition is truly significant. All the relevant growth-enhancing policy “ingredients” are there: bolstering competition in product and services markets and investing in skills; facilitating trade and removing obstacles to investment; reforming labour markets and stepping up activation policies to boost participation and address unemployment.
But now that the commitments have been made, they have to be implemented. The G20 has asked the OECD and the IMF to report back next year on whether countries are keeping their promises. They have talked the talk, but we will be checking that they walk the walk.
Second, G20 Leaders in Brisbane also committed to close the gender gap in labour market participation by 25% by 2025. This alone could bring an extra 100 million women into G20 labour markets and yield an additional 1.6% output growth by 2025 by reaping the full potential of women’s educational achievements, qualifications and skills.
Lastly, important progress has been made on the tax agenda. The 7 BEPS actions agreed upon by G20 Leaders are a powerful tool: They will allow us to deter treaty abuse, neutralise hybrid mismatches, demand country-by-country reporting from multinationals, develop an approach to the tax challenges of the digital economy and automatically exchange tax rulings.
In addition, Leaders endorsed the common standard for automatic exchange of tax information. Even though the Standard is not yet in force, twenty-five countries have already identified additional revenue of 37 billion euros thanks to voluntary disclosure programmes and other initiatives to combat offshore evasion. More will follow. The goal is “nowhere to hide”.
These are truly significant achievements which will make our tax systems fairer and help governments recover much needed tax-revenues. Structural reform and the new tax agenda will jointly help the world economy revert to a path of higher and more sustainable growth.
Brisbane was a good G20 meeting.
Ladies and Gentlemen:
I would now like to give the floor to our Chief Economist, Catherine Mann, who will share with you further details on our assessment of the economic situation and the policy challenges ahead.