Remarks by Angel Gurría
11 April 2019 - Washington, United States
Dear Ministers and Governors,
The global economy is entering into rougher seas. In our latest Interim Economic Outlook, global growth is projected to ease further from 3.6% in 2018 to 3.3% this year and 3.4% in 2020. Growth prospects have been revised downward in all G7 economies, particularly so in Germany, Italy, the UK and Canada.
Our assessment is broadly consistent with that of the IMF and things could actually go worse: a disorderly Brexit, US tariffs on cars, or weaker demand in a large European country could have severe knock-on effects throughout Europe.
This does not mean doom and gloom, but collective action is urgent. A combination of coordinated fiscal stimulus and structural reforms can revert the downward course of Europe’s growth. In countries in need and with fiscal space, governments can take advantage of low rates to undertake more public investment in the digital and physical infrastructure. A modest fiscal stimulus in euro area countries with low public debt, coupled with structural reforms to improve competition and productivity, would add 0.5% to the whole region’s GDP as soon as 2020.
But let me insist on an additional dimension which is actually having a strong bearing on the current political and social context in which economic policymaking is being deployed: high and rising inequality is and remains a structural risk for current growth prospects. Through its consumption and investments as well as its support to democratic institutions, the middle class provides the very foundation for political, social and economic stability, which is in turn the bedrock of improved living standards and well-being. However, as documented in our new report “Under Pressure: The Squeezed Middle ClassToday”, the share of people in middle-income households is falling: over the past 30 years, median incomes increased a third less than the average income of the richest 10%. The purchasing power of the middle class decreased. One-in-six current middle-income jobs face high risk of automation. At the same time, the financial vulnerability of middle income households increased: 40% of them are today either in arrears, or unable to absorb unexpected expenses or a sudden drop in income.
In addressing the challenge, governments need to adapt tax and benefits systems. Reforms in the housing and education sectors are also required. The OECD fully supports the focus of the French presidency on tackling inequality. Thank you.