Remarks by Angel Gurría, OECD Secretary-General, G20 Finance Ministers Meeting, Sydney, February 2014
Session 3 – Growth Challenges – avoiding the low growth trap
(As prepared for delivery)
Mr. Chair, Ministers and Governors, Ladies and Gentlemen,
Although the recovery is strengthening in advanced economies, the growth engine of the world economy is still not firing on all 4 cylinders: high unemployment and widespread underemployment hold back demand; investment is below its long-term trend - so is international trade ; and credit to the private sector has been flat in several countries of the G20. As a result, output in the vast majority of G-20 countries is below potential and economic slack remains highest in the advanced economies at close to 2.5% of potential GDP.
While we discussed yesterday the recovery in demand, the slowdown in potential growth is an increasing concern. What is the risk of the G-20 being caught in a persistent low growth trap?
Some of the drivers of the slowdown, like demographic ageing, are given.
However, a “new normal” of slow growth is not inevitable!
Structural reforms give you a lever to increase growth substantially.
The OECD, IMF and World Bank note for this meeting suggests that closing the “policy gap” between current policies and what could be achieved with ambitious –but nevertheless realistic – reforms would raise GDP by 2% over the coming five years. This scenario basically involves countries that have not made reforms, catching up to those that have.
Besides keeping the house in order on the fiscal front, and finding a smooth way for normalization of monetary policies, more emphasis should be put on structural reforms. Key areas include:
The G-20 “comprehensive growth strategies” should identify concrete policies to meet the objective of boosting GDP by at least 2% over 5 years:
- Growth strategies should use the full range of policy levers together to boost productivity;
- Growth strategies should address both the short-term requirements of boosting global demand, with the need to raise the growth potential over the medium to long term. Investment will pick up if there are good opportunities to compete and innovate, but reforms work best if demand and the financial system are strong.
But while developing comprehensive and integrated growth strategies is good, implementing them is even better! G-20 countries have already made important progress in structural reforms. Yesterday, I launched here in Sydney with Treasurer Hockey an update of the OECD’s Going for Growth. Our report shows that the pace of policy reform is higher than before the crisis, but appears to have slowed down over the past two years.
We are now clearly in diminishing returns territory when it comes to monetary and fiscal policies to underpin the recovery. Thus the message is clear: “go structural”! Education, innovation, competition, labour and product markets, taxes, health systems, R&D, infrastructure, regulation: These are the policies that will keep the growth going in the medium to long term.