Remarks by Angel Gurría, Secretary-General OECD
Paris, 27 November 2012
(As prepared for delivery)
|| Good morning, ladies and gentlemen,
Welcome to the launch of the November 2012OECD Economic Outlook.
I would like to share with you our core messages before handing over the floor to Pier Carlo Padoan, Deputy Secretary-General and Chief Economist of the OECD, who will elaborate on our projections, the risks to the outlook and the key challenges facing policy makers in the current juncture.
The global economic outlook has deteriorated, again
A hesitant and uneven recovery is projected for the OECD area over the next two years. Yet again! The euro area will remain in or near recession into well 2013. Growth is expected to pick up in the United States and Japan, but only gradually. A quicker recovery is expected in the emerging-market economies.
The near-term outlook is not only weak, but also downside risks predominate. The lingering euro area crisis remains a serious threat to the world economy. At the same time, if left unresolved, the U.S. “fiscal cliff” could tip the U.S. economy into recession and weigh on global growth.
Decisive policy actions could nevertheless make a difference and underpin an upside scenario for the global economy. This upside scenario is about turning confidence around. It is about using a window of opportunity to improve on the rather mediocre baseline on which our projections are based.
This is the key message I want to deliver today: the ambition should be not only to avoid the downside risks to the baseline, but also – and most importantly – to make sure that the upside materialises.
An upside scenario of stronger confidence and growth
In this upside scenario, the euro area crisis is finally resolved. The easing of market pressures since the summer has been a positive sign, but we are not yet out of the woods. Fiscal consolidation is ongoing where it is needed, and progress is being made in structural reforms. But the economic environment is still fragile: any bad news could further undermine confidence and endanger the euro area again.
Key challenges remain to tackle the euro area sovereign debt crisis, repair the banking system, and foster growth and jobs through structural reforms.
The mechanisms that have been created to manage the crisis, including to let the European Central Bank operate in support of countries facing market duress, should be activated promptly. Important steps were announced yesterday to further alleviate Greece’s sovereign debt burden, including by paving the way for a private debt buyback. These measures need to be implemented fully to restore the longer-term sustainability of the country’s public finances and must be accompanied by a broad range of structural reforms to boost competitiveness and growth.
After the fiscal union, now a fully-fledged banking union needs to be created to complete the architecture of the euro area. This is about introducing common supervision and cross-border resolution mechanisms, common deposit insurance and euro area fiscal backstops to avoid another financial storm. Europe also needs to improve the capitalisation and strength of its banks.
This upside scenario is also about the United States. Action is needed across the Atlantic to avoid going over the edge of the “fiscal cliff” and to put the US public finances back on a sustainable path over the longer term. To do so, major tax expenditures should be scaled back, including the tax deduction for mortgage interest payments and the health-care insurance exclusion. The Bush tax cuts for high-income earners should also be allowed to expire, and fuel taxes should be increased. On the spending side, the retirement age should be increased further, and the promised cost savings under the health-care reform need to come to materialize.
The upside scenario is not just about the short term.
We have recently published scenarios for the global economy until 2060. These scenarios are revealing: they show a shift of wealth at the global scale with the centre of gravity of the global economy shifting to the dynamic emerging-market economies. And they also show that, unless ambitious structural reforms and fiscal consolidation are undertaken, global imbalances could widen again to pre-crisis levels over the next two decades and yet again undermine growth.
Our job is therefore to make sure that these long-term imbalances do not materialise! We all want greater prosperity and stronger growth over the decades to come. But we will not get there if imbalances keep growing and crises are recurrent.
Structural reforms are the key to our ambition of achieving strong, sustainable and balanced medium-term growth. Actually, many of these policies would help even in the short term to create jobs, reduce long-term unemployment and increase investment. An effort is needed in all countries – not just the “crisis” countries. The courageous steps taken by several euro area countries to recover their competitiveness – including Italy and Spain – are an example of what needs to be done.
This upside scenario is also about putting in place policies to ensure environmental sustainability and tackle rising inequality. A growth model that keeps us in a collision course with nature and does not spread its benefits across social groups is doomed to fail!
This is not just a modeling exercise. This is meant to be a massive wake-up call to go structural, go social, go green, go institutional if we are to avoid the mediocre, undesirable scenario we see, absent bold, courageous, decisions.
We are not yet there
A lot needs to happen for this upside scenario to become reality. I am now happy to hand the floor to our Deputy Secretary-General and Chief Economist, Pier Carlo Padoan, who will guide you through this outlook and policy challenges in more detail.
For the webcast, click here.