Remarks by Angel Gurría, OECD Secretary-General, delivered at the OECD Global Parliamentary Network Meeting
2 October 2014, Paris, France
(As prepared for delivery)
Good morning Ladies and Gentlemen,
Welcome to the OECD Global Parliamentary Network. It gives me great pleasure to see this network growing from strength to strength since its creation in 2011. We now hold three meetings per year, two in Paris and one “on the road”.
This year already, we held the very successful Parliamentary Days in February, where we had a record turnout, thanks to our close work with the NATO Parliamentary Assembly, and we were also kindly hosted by the Mexican Chamber of Deputies for our meeting abroad in June.
Our dialogue with parliamentarians has also become an essential tool to fine-tune our analysis with the experiences you bring from your work in your own constituencies.
OECD Global Parliamentary Network Meeting, Angel Gurría, Secretary-General of the OECD. Photo: Hervé Cortinat
You have a full programme ahead of you today, covering numerous issues. Allow me to start by placing some of these issues in the broader context of the global economic landscape, and outlining some key elements of the OECD’s response to the current global challenges.
The global economy is expanding at a moderate and uneven pace.
As reported in our September Interim Economic Assessment, the global economy continues to expand at moderate pace, with an annual rate of around 3% in the first half of 2014, the same pace as in the past 2 years. This is far from the robust and broad expansion we need in order to heal the scars of the crisis.
This prolonged moderate economic growth has meant that global trade continues to grow sluggishly, only about half its pre-crisis pace. Investment has also been weak in most major economies, hindering world GDP growth.
We are also witnessing growing differences in economic performance among and within the main regions; and we expect them to continue in the near term. For example, among OECD countries, the United States, the United Kingdom and Canada are expected to continue growing at a sustained pace through 2015 between 2% and 3% this year and next.
In contrast, growth in Japan and especially in the euro area has been disappointing so far this year. It is not expected to strengthen substantially and will remain around 1%. We are particularly concerned about the euro area, as weak demand is becoming a chronic problem. While we are not projecting deflation in the euro area, we see a growing risk of prolonged stagnation compared to just a few months ago.
Currently, the emerging economies represent the main bright spot in the global economy. After slowing from 2010 onwards, the average GDP growth rate for the BRIICS is showing signs of stabilising and is expected to strengthen and feed the global economy. This improved momentum is originating in China and India. On the other hand, Brazil fell into recession in the first half of 2014, and others continue to face significant challenges to sustain solid growth rates. In particular, emerging economies remain vulnerable to financial market shocks given the build-up of debt in recent years.
Some geopolitical risks have also worsened in the recent past, notably the deteriorating situation in Ukraine and the Middle East, which could negatively impact the global outlook.
Financial markets appear blind to these risks: Equity markets are reaching record highs, sovereign bond yields in several countries are near all-time lows and indicators of share price volatility are around pre-crisis levels. In the current context, such bullishness may indicate a mispricing of risk and the attendant danger of a sudden correction.
The social legacies of the crisis are hindering the recovery.
The crisis has left us three other legacies of serious social and political consequence.
Unemployment remains well above its pre-crisis levels in many OECD countries. We expect average jobless rates in the OECD area to fall slightly from the current 7.4% to 7.1% by the end of 2015. Today, almost 45 million people are still out of work in OECD countries, 12 million more than just before the crisis. Globally, an estimated 202 million people remain unemployed, with many more in low-paid and precarious jobs.
More worryingly, youth unemployment rates have reached alarming levels, particularly in a number of Euro area countries, such as Greece and Spain, experiencing rates of over 50%; while Italy, Portugal and the Slovak Republic are also badly affected.
Income inequality in OECD countries is at its highest level for the past half century and has intensified during the crisis. The average income of the richest 10% of the population is about nine times that of the poorest 10% across the OECD.
Last but not least, the erosion of citizens’ trust in governments and institutions continues to plummet. According to the latest World Gallup poll, on average, only four out of ten citizens in OECD countries say they have confidence in their government. And this loss of trust extends beyond governments – trust in markets and businesses has also been badly bruised, with potentially severe effects on longer-term investment and economic growth prospects.
Working towards a new growth model.
In addressing the many and multifaceted challenges which I have touched upon today, we can no longer turn to traditional economic theories and policies. Collectively, we must address these issues through a different growth model and through a new economic paradigm. We need to shift our mind-set and focus it on building sustainable, inclusive economies, and on restoring citizens’ trust in governments and public institutions. At the OECD we are working on several fronts to achieve these goals.
In 2012 we launched the OECD New Approaches to Economic Challenges (NAEC) initiative. Through NAEC, we embarked on an organisation-wide reflection process on the roots and lessons from the crisis with the principle aim of improving our analytical framework and policy advice. I’m pleased to say that it is starting to bear fruit. We are for instance already using new tools to model the interlinkages between public policies, such as how to achieve an equity and growth-friendly fiscal consolidation.
The OECD’s Inclusive Growth Initiative has been one of the most important outcomes of the NAEC process. Inclusive growth is a new prism through which we look beyond traditional economic indicators toward issues such as: education and skills; job quality; health status; environment; civic participation; and social connections. They all provide a more accurate reflection of the multi-dimensional nature of well-being. Inclusive Growth places inequality at its heart and focuses on a more tailored approach to targeting disadvantaged social groups.
It is also essential to ensure that future growth doesn’t come at the expense of our planet. Climate change is no longer simply an environmental issue – it is an economic and a social issue. Green growth is crucial and it involves making changes in most areas of our economies. Through our Green Growth Strategy, we are arguing for the elimination of subsidies to fossil fuels, the introduction of an appropriate price on carbon and the removal of barriers to the mobilisation of investment in green technologies.
Only last week, during the climate change talks at the UN in New York, we witnessed a phenomenal mobilisation by the community, local governments and civil society. Their role will be central in catalysing action and securing the necessary political will to finalise an ambitious, global legal climate agreement at COP 21 in 2015.
I would like to conclude with one recent major example of international policy coordination. During the G20 Finance Ministers’ meeting in Cairns, I presented the 2014 package on Base Erosion and Profit Shifting or “BEPS”, at it is better known. This package represents a major step forward in helping our governments to tackle aggressive practices which erode the tax base of companies and artificially shift profits to low or no-tax jurisdictions. These practices damage the integrity of our tax systems, impede the capabilities of our governments, diminish the growth potential of our economies and corrode the trust of our citizens.
You will receive a detailed briefing on BEPS this afternoon. Following its endorsement by G20 Finance Ministers, BEPS should be one of the most important “deliverables” of the 2014 G20 Leaders Summit to be held in Brisbane, in November. These measures will help reduce tax treaty abuse, better deal with the fiscal implications of the digital economy, and neutralise hybrid mismatches. We are now looking forward to forthcoming discussions on the feasibility of a multinational instrument to streamline implementation.
The OECD has been working as a natural partner with the G20 since 2009, drawing on our strength as a multidisciplinary organisation with an increasingly global voice. As you will hear this afternoon, we have supported the G20 process across the board, providing evidence-based policy advice in areas such as trade and investment; labour and employment, green growth and anti-corruption, to name but a few.
Ladies and gentlemen:
I would like to reassert that our strengthened dialogue with parliamentarians – the ‘voice’ of society – remains vital in a fast-paced and increasingly globalised world.
Together, through the exchange of national experience and lessons learned, on the one hand; and of targeted policy advice and best practices on the other, we can overcome the legacies of the crisis and come closer to achieving our common goal of sustainable, inclusive and fairer growth.
Thank you once again for being with us today, I very much look forward to your questions.