Pre-G20 Summit Economic Outlook Launch
Remarks by Angel Gurría, OECD Secretary-General
Paris, 6 November 2014
(As prepared for delivery)
Ladies and Gentlemen,
Thank you all for coming. We are here today to provide you with a brief snapshot of our forthcoming Economic Outlook. The complete Outlook will be finalised for a release on the 25th of November, but we would like to share with you our main views ahead of the G20 Summit next week in Brisbane.
Growth has again disappointed in most countries…
Unfortunately, growth rates continue to disappoint. And once again, we have marked down global growth. We are now projecting 3½ per cent next year, almost half a percentage point lower than what we foresaw 6 months ago and even slightly lower than the numbers from our Interim Assessment in September. Global investment, credit and international trade, all remain hesitant. The world’s recovery remains modest and uneven.
These may turn disruptive, especially for some emerging economies where debt – particularly corporate debt – has increased substantially in recent years.
Angel Gurria, Secretary- General of the OECD, speaking at the Pre-G20 Summit briefing on the OECD Economic Outlook. Photo: Marco Illuminati
… but there are also some positive signs
We have however witnessed a number of positive developments. China has so far been able to manage the rebalancing of its economy and achieve a controlled growth slowdown to more sustainable rates of around 7%. Growth is strengthening in India. The US recovery is broadly on track, with a recent rise in employment and fixed investment. We expect US GDP to grow by around 3% in the next two years. Sizeable efforts to restore fiscal sustainability means that now the fiscal stance can be less of a drag on activity on both sides of the Atlantic.
Even in the Euro area, there are some encouraging signs. Countries in the periphery are slowly recovering and important reforms undertaken over the past 5 year are now bearing fruit. In addition, the Comprehensive Review of the banks’ balance sheets, released 10 days ago, was a first step in restoring trust in the European banking sector.
Getting the engine of global growth running at full speed requires bold policy action
One of our key policy messages is to the Euro area, where the persistent low-growth and low-inflation environment calls for more macroeconomic policy stimulus to support demand. In the absence of such support, the growth performance of the Euro area will be much weaker than the 1.1% and 1.7% we foresee for 2015 and 2016 respectively. We call for further unconventional monetary measures to keep long-term interest rates low. And we believe that for Euro area countries in which some fiscal space exists, a slowdown of structural budget consolidation could take place.
Japan, by contrast, does not have room for fiscal manoeuvre, but instead has to reduce its budget deficits to halt an unsustainable debt accumulation.
We are pleased to see renewed reform momentum in many countries. Mexico has approved more critical reforms in the past two years than in the previous decade. In India, a number of business-friendly measures have been adopted over the past few months. And while reform efforts in the Euro area were previously concentrated in the periphery, we now see welcome developments also in the larger economies. In Italy, a comprehensive reform of the labour market has just been announced. France is also raising its reform ambition, notably with the “projet de loi pour l’activité”.
Another positive development is that these reform efforts are no longer isolated individual actions, but increasingly part of a global strategy to achieve stronger, more sustainable and more inclusive growth. And inclusiveness is what we need – not only for its own sake but also because it is critical for growth. As our recent analyses show, high inequality slows down growth because poor households are deprived of access to credit, and because they are underinvesting in human capital.
We will be publishing a study on this issue next week. Similarly, climate change will act as a drag on growth if we don’t act quickly on this front. I will not go into detail on this issue here, but let me highlight that it is an OECD priority and we are working with all climate stakeholders to advance the debate ahead of the COP21 next year.
An important development this year has been the decision by G20 Finance Ministers in February to identify national growth strategies that collectively would lift G20 GDP by more than 2% by 2018. These growth strategies will be revealed at the summit in Brisbane next week.
After assessing nearly 1000 structural reform commitments made by G20 members in their draft growth strategies, we have estimated – together with the IMF – that their likely 2% growth objective is within reach if the identified measures are implemented. The result would be higher labour market participation, long-term investment, productivity and wages. The reforms would also help reduce unemployment, which remains stubbornly high in many OECD countries.
Messages to G20 policymakers
Ahead of the meetings in Brisbane next week, I would like to convey three messages to G20 policymakers.
First, the true hard work to implement these commitments begins now. Many measures need to be legislated and then work begins on the ground. Implementation will involve many difficulties, both practical and political.
Second, the weak recovery and risks to the outlook mean that we must stay sensitive to demand, even as we undertake supply-side reforms. One of the key messages of our forthcoming Outlook is that reforms fostering investment should have a high priority given their positive short-term effects on demand.
Third, structural reform is not a list of measures with an end date. It is an on-going process to build more productive, inclusive and sustainable economies for citizens. Despite the progress made this year, there are plenty of opportunities to make even more progress. For example, bringing more women into the labour force would create millions of additional jobs. A more ambitious trade agenda would help to get the trade “engine” working again. And G20 countries could show the way by unwinding the trade-restricting measures that they have taken since the onset of the global crisis.
Of course, neither the ambition nor the responsibility for reform stops at the door of the G20. And there are many examples of ambitious and successful reforms undertaken by smaller economies.
Ladies and Gentlemen:
I would now like to give the floor to our Chief Economist, Catherine Mann, who will guide you through this global Outlook and the policy challenges in more detail.