Remarks by Angel Gurría, OECD Secretary-General, 15 January 2014, Moscow, Russian Federation
As prepared for delivery
Prime Minister, Ladies and Gentlemen,
I would like to start by thanking the Prime Minister for his excellent keynote speech. It is a great honour to be here today and participate in a panel with such illustrious speakers to discuss the main challenges for the world economy.
In the morning session I shared our findings from the OECD Economic Survey of the Russian Federation about ways to improve Russia’s growth outlook. I would now like to focus my comments on how to get the world economy back on a growth path that is sustainable, green and inclusive.
Legacies of the crisis and the cylinders of growth
As you know, we continue to live in the aftermath of the crisis. The crisis was staged mainly in the advanced economies and it is also them that have suffered the most. The crisis’ legacy includes at least four worrying features:
- Low growth. The world economy is working at half its capacity. GDP grew at 2.7% in 2013, the worst result since 2009. While we expect growth to reach 4% by 2015 there is much uncertainty, as I will explain later.
- Unemployment. Unemployment is too high in many countries. It stands at 8% in the OECD, 12% in the euro area. Youth are suffering the most. We risk having a lost generation as persistent unemployment at a young age can leave lifelong scars.
- Inequality. Income inequality has been increasing over the last three decades in most countries. The crisis has intensified the extent of inequality, the source of much social discontent.
- Loss of public trust. According to our “How’s Life” report, only 40% of citizens in the OECD trust their national governments – the lowest level since 2006. But the decline in trust extends to other institutions: banks, stock markets, the judiciary.
Although recently we have observed signs of a pick-up in employment and investment in some countries, there are no clear prospects yet for a strong global recovery and a return to the pre-2007 growth path. This is not surprising, as the four main cylinders of the growth engine are running at half speed.
- Growth of investment is below 2%, the slowest in many years and well below trend.
- Trade is also sluggish, growing at 2-3%.
- Credit is also recovering slowly, and in the euro area it fell by 2% in 2013
- Finally, the EMEs, the world’s key growth cylinder during the immediate post-crisis period, are showing signs of faltering.
Uncertainties and the new “normal”
While we expect growth to strengthen in the coming years, there continue to be many uncertainties, such as the impact of the gradual US exit from quantitative easing, the ability of Abenomics’ three arrows to beat deflation in Japan, the health of European banks, or future policy developments in China. These uncertainties present a major challenge for policymakers.
We still have to figure out what would be the new “normal” as we finally truly exit from the crisis. This makes policy decisions extremely difficult. For example, uncertainty on potential output going forward makes exit from QE a very delicate exercise. As monetary policy returns gradually to a more neutral stance, we may observe temporary financial turbulence and headwinds, as happened in mid-2013. This risk is highest for countries with high levels of external indebtedness and weak banks.
Structural reform to boost growth and improve the resilience to shocks
To reduce these uncertainties and improve their resilience to shocks, countries need to embark on product and labour market reforms to promote competition and flexibility. They also need to strengthen their banking sectors and continue their efforts at fiscal consolidation, particularly in Europe.
Structural reforms of product and labour markets remain a pending policy agenda for many countries. Our indicator of product market regulations shows much improvement in some OECD countries heavily affected by the crisis, such as Greece, Portugal or Spain. On the other hand, barriers to competition in the BRIICS remain very high, with Russia standing out despite recent progress.
We are particularly eager to see how the wide range of reforms introduced in the Chinese Third Plenum translate into actual reforms, and whether indeed they lead to a more balanced growth, allowing the market to play a more decisive role in the economy.
Towards greener and more inclusive growth
Policymakers also need to ensure that growth not only speeds up, but that it is green and inclusive. Tackling climate change should be a top priority. As we approach the Conference of the Parties in late 2015 in Paris (via Warsaw and Lima), we need to start taking action now to put us on a pathway to achieve zero net greenhouse emissions globally in the second half of this century. The scale of investment needed to reduce our reliance on fossil fuels can give a huge boost to growth, as well as making growth greener.
We also need to ensure that the gains from economic development are shared more broadly. There is no better way to do so than to enhance access to high-quality education and training. As we showed in our latest PISA exercise, some countries in Asia and elsewhere continue to improve their educational systems, while others are falling behind. Our “Adult Skills Survey” (PIAAC) - the “PISA for adults”- published last year also showed that skills are very unequally distributed.
Our Gender Initiative has also identified policy priorities to address gender equality in three key areas key to economic performance: education, employment and entrepreneurship. Improvements in these areas should go hand in hand with providing better opportunities to combine work and family life. Otherwise, we risk becoming skills-rich and population-poor over time, as many countries are already experiencing. Women’s increasing educational attainment and growing labour participation is a highly welcome development. But women’s – and hence society’s - potential will only be fully realised if we improve access to childcare and continue to address discriminatory social norms.
Prime Minister, Ladies and Gentlemen,
The list of priority policy issues to bring about a stronger, more sustainable, and more inclusive recovery is of course much longer. I could mention also continuing efforts at boosting trade and addressing tax evasion and avoidance. We have been privileged to work on these and other issues with the Russian Federation, especially during last year’s Presidency of the G20 and as part of the accession process. We are very much looking forward to continuing this dialogue and seek policies that promote better lives for our citizens.