Remarks by Angel Gurría
Ankara, 4 September 2015
(As prepared for delivery)
Ministers, Central Bank Governors,
While the world experienced an exceptionally hot summer, clouds were gathering over the global economic outlook.
We still expect the global growth rate to pick up next year, but the recovery remains cooler than it should be. Even as the cycle picks up, global GDP will remain below its 4% past average rate.
Unemployment is falling, but will remain too high. Investment is strengthening, but remains too low. World trade is growing at its slowest rate since the crisis.
Our updated Interim Economic Outlook – to be published mid-September – will likely show a downgrading in global GDP growth forecasts.
It is disappointing that the favourable winds from lower oil prices and improving global financial conditions have not given more of a boost to the world economy.
But not only has the central scenario failed to improve as much as we would have hoped. Worse, three downside risks have come to the fore.
First, there are signs of a larger-than-expected slowdown in Chinese growth, trade and commodity demand. Industrial production is now growing at its weakest rate since 2008. Rebalancing the economy towards services will be a challenging task.
Second, there is some disappointment with the robustness of the pick-up in the euro area that raises questions about the strength of the recovery there. The fall in oil prices, depreciation of the euro and ultra-low interest rates created favourable tailwinds - these should have driven euro area growth around a percentage point higher than the rate we see today.
Third, recent financial market volatility underlines risks of a renewed storm in financial markets and capital flows. Growth in several emerging economies has already slowed this year. Growing private indebtedness in recent years has made them more vulnerable to adverse shocks to their terms of trade, interest rates and exchange rates.
We are still far from the G20’s objective of achieving strong, sustainable and balanced growth.
G20 countries must continue to act together to support global demand and stand ready to address emerging risks. At the same time, we must recognise that countries need to respond in different ways - some will need to increase stimulus, while others normalise policy.
And, it’s not just a question of what you do but how you do it!
More of the same old stimulus measures will not necessarily work. We don’t need more white elephants!
Demand and structural reform policies need to work together more closely to support jobs now, while boosting sustainable and inclusive growth for the future. Investment needs to be well-targeted. In emerging economies, extending social safety nets can provide a useful tool to support demand.
For example, fiscal stimulus is not just a question of spending more money, but making sure that the money is well-targeted, fairly distributed and adds to long-run sustainable growth.
Together with Fund colleagues, we have provided a paper to this meeting, following your request in Cairns. “Fiscal Policy and Growth: Why, What and How?” can help guide your policy choices.
Tax and spending policies can help increase employment, investment and productivity. There is no “one size fits all” solution, but many options.
Key levers include changes to the tax system to make it more worthwhile for low-income households or specific groups to work. This raises spending power, as well as increasing the labour force.
Spending on education and skills should be a priority. Investment in infrastructure needs to be of high quality. Strong and well-designed social safety nets support income, while encouraging people to work and reducing informality.