G20 Finance Ministers’ and Central Bank Governors’ Meeting
Session II - Framework for Strong, Sustainable and Balanced Growth
Remarks by Angel Gurría,
Shanghai, 27 February 2016
(As prepared for delivery)
Ministers, Central Bank Governors,
The global economy is at a cross roads: we are faced, again, with difficult times, worrying developments and hard choices. Our recent data and analysis send the clear signal also to the G20 policymakers; eight years after the crisis stronger growth remains elusive and decisive and collective action is needed. The OECD’s updated Economic Outlook – which you have in front of you and which we published last week – again downgraded forecasts for reducing global GDP by 0.3 points to just 3% for 2016, the same as in 2015. No progression and only modest prospects for 2017.
Global growth prospects have practically flat-lined despite the expected boost from low oil prices and low interest rates. Global growth rates of just 3 per cent in 2015 and 2016 are the lowest in the past five years and well below long-run averages.
World trade volumes grew by less than 2% in 2015 – which is deeply concerning indeed. Over the past five decades there have been only five other years in which trade growth has been 2% or less, all of which coincided with a marked downturn of global GDP growth.
Sluggish demand is generating deflationary pressures and inadequate wage and employment growth – which in turn depress living standards and make it more difficult to reduce poverty and tackle rising inequality! A true downward spiral.
In addition, productivity growth -- a central ingredient in the pursuit of well-being -- has been decelerating in advanced economies since around 2000, and more recently in the emerging-market economies.
Worse, threats to financial stability are rising. Markets are reassessing the outlook [answer to Mark Carney], causing sharp declines in asset prices and increased volatility. A number of emerging markets face vulnerabilities linked to currency exposures and/or high domestic debts. The recent slide in bank equity prices in advanced economies reflects these challenging fundamentals.
The current policy mix is not working and is not delivering strong, sustainable and balanced growth! So we need to change tack. Urgent and strong collective policy action is needed by the G-20. We need a new strategy to make use of the available policy space and the full economic “toolbox” to put growth on a sounder footing - in particular, making stronger use of fiscal and structural policy levers. It was widely acknowledged that monetary policy cannot deliver this alone.
The current situation is indeed a wake-up call for a stronger collective policy response aimed at strengthening demand and potential growth
One important lever would be, to take advantage of today’s interest rate environment, a collective commitment to increase public investment in high-multiplierprojects – which would boost demand while remaining on a fiscally sustainable path. Carefully selected quality infrastructure projects would help to support growth and eventually lead to a reduction in debt to GDP ratios.
The second – complementary lever is structural reforms. These are essential to revive productivity growth and put the economy on a stronger medium-term path.
Therefore, it is crucial that reform commitments and implementation be strengthened.
For the G-20, full implementation of the Brisbane commitments to raise GDP by an additional 2% over 5 years is not happening. As our analysis shows, only about 1/3 of these gains had been achieved by Antalya. Only if the remaining commitments are fully implemented this year will the G-20 get anywhere close to its original reform target. The 800 commitments to structural change by G20 Members constituted the most promising, exciting and ambitious set of policy actions which would have had a more lasting and systemic impact – way beyond the expected 2% cumulative growth. We have to recover such ambition. We have to make reform a state of mind, a way of life.
Yesterday, here in Shanghai, I released, jointly with Minister Lou Jiwei, OECD’s 2016 Going for Growth assessment of structural reforms. It documents a worrisome slowdown in the pace of structural reform in recent years, just when we need it move.
The OECD therefore welcomes the Presidency’s “two pillars” to enhance the G-20 structural reform agenda.
First, agreeing on common priorities and then on the principles to meet them – while recognising differences in country circumstances – should help to revive momentum of the G-20 reform agenda.
Second, the indicator dashboard will help measure progress towards the G-20’s objectives. The OECD is happy to work with members on these efforts.
Our long experience of working with structural policies shows that these can provide a strong impetus, not only to take action, but to take the right action.
Greater emphasis on skills, on trade – notably in services – on cross-border investment and innovation - would help to strengthen this agenda. The OECD is happy to work with the IMF in supporting this member-led process.
I therefore call on you, G-20 Finance Ministers and Central Bank Governors, to work together to rethink the combination of our policy instruments – the “policy mix” – to make better use of the monetary, fiscal and structural policy space – both individually and collectively.Count on the OECD to craft the Hangzhou Action Plan.