Remarks by Angel Gurría
17 July 2019 - Chantilly, France
(As prepared for delivery)
The global economy is in a fragile spot. Our latest Economic Outlook projected global GDP growth to slow down to 3.2% this year and improve only to 3.4% in 2020, against a projection of 4% growth a year ago. Across all G7 economies, growth is projected to be lower this year than in 2018.
Even these lower projections should not be taken for granted. What was recently perceived as a pressing risk to the outlook is in fact already a reality. Trade tensions are taking a rising toll on businesses and consumers. Global trade growth, which was buoyant in 2017 at 5.5%, turned negative in the first quarter of 2019, and merchandise trade has remained weak in the latest months. Prolonged uncertainty about trade policy means firms are cutting their investment plans. Ultimately, this will mean fewer jobs, and if the escalation continues, it could precipitate a recession.
In parallel, we see worrying developments in financial markets, especially with regards to the massive corporate debt which has increased to $13trn worldwide, with more than 50% of newly issued debt only one level above investment grade. Were risk sentiment to shift – for example because of increased trade tensions – there is a danger of massive cascading downgrades, which would hurt firms’ investment, people’s savings and ultimately growth.
Trade tensions need to be tackled and common solutions found in international fora to reinforce a transparent and rules-based system. Thus the reform of the WTO should be addressed as a matter of highest priority. This is the only way to restore the predictability that businesses need to invest, grow and create jobs.
In addition, although monetary policy should remain accommodative, it cannot continue to be the main firefighter. Fiscal action must now take the lead. A number of OECD countries have indeed scope to ease fiscal policy without compromising debt sustainability.
More generally, public investments to accompany the digital transformation and accelerate the ecological transition are needed across the G7. They would provide a much needed boost to faltering growth and at the same time build better prospects for long-term improvements in living standards and well-being.
Fiscal action however needs to be accompanied by an acceleration of concerted structural reforms. But paradoxically, as we have highlighted for several years now, including in our Going for Growth report, the pace of reforms has receded after its post-crisis peak, implying a lost opportunity to boost growth.
Ministers, times of uncertain global economic prospects are also times for reform and times for enhanced international cooperation. The G7 is ideally placed to lead such efforts.