Economic outlook, analysis and forecasts

Global Economic Outlook

 

Remarks by Angel Gurría, OECD Secretary-General, at the China Development Forum/Academic summit

Saturday 20 March 2010, 9h00
Beijing, People’s Republic of China
 
Ladies and gentlemen,
It is a pleasure for me to be back in Beijing and to speak to such a distinguished audience.

For the purpose of setting the scene for this session I would like to say a few words about how the OECD sees the current global economic outlook and the main policy challenges that we will need to tackle to recover from the crisis.


Emerging from the crisis

The world is emerging from the deepest recession since the 1930s. The recovery is ongoing in the OECD area, but it is expected to remain fragile in the near term. By contrast, activity is set to remain strong in many emerging-market economies, especially in Asia. Indeed, China has been a bulwark during the downturn. Her economic dynamism, in combination with supporting policies, has played an important role in moderating the world downturn and is helping to drive the global recovery.

The crisis has had three important effects on OECD economies.

First, the crisis brought about the most rapid and sizeable increase in unemployment in the post-war period. The OECD-wide unemployment rate rose to a high of 8.8% in December 2009 from a 25-year low of 5.6% in late 2007. This means 16.3 million additional people unemployed.

Second, we estimate that the level of potential output has fallen by some 3% in the OECD area as a whole as a result of the crisis. This is in part because of an increase in long-term unemployment and reflects the severity of the crisis in most OECD countries.

Third, the crisis wreaked havoc in the public finances. Discretionary fiscal measures, coupled with cyclical revenue losses and expenditure increases, have resulted in sharp increases in budget deficits and a related build-up of government indebtedness almost everywhere in the OECD area. In fact, for 2010, we project budget deficits to rise to over 8% of GDP in 2010 and government debt to exceed annual GDP by 2011 in the OECD area as a whole.


Addressing emerging challenges

Now that the worst of the crisis is behind us, OECD countries need to face the challenge of ensuring that a strong, jobs-rich recovery takes hold and that potential growth can be restored and maintained over the longer term.

To meet this challenge, efforts will be needed across policy domains. Structural reform will be needed to unlock opportunities for investment, to boost labour productivity and to ensure that labour resources are fully utilised. This is essential for restoring potential growth.

A major risk is that many of the unemployed drift into long-term joblessness and slide gradually into inactivity. Should this happen, the cyclical increase in unemployment due to the crisis may become structural in nature. This is worrying both from social cohesion point of view as well as for long term growth performance. It is therefore especially important to support, through effective labour-market programmes, those workers who are at risk of becoming long-term unemployed and losing contact with the labour market.

Finally, fiscal consolidation needs are unprecedentedly high in many OECD countries. The pace and magnitude of consolidation will of course need to be gradual and contingent on the strength of the recovery and the state of public finances in individual countries. The international dimension of consolidation also needs to be taken into account. Given the synchronous nature of adjustment in many countries, activity will be affected not only by domestic consolidation but also by consolidation abroad through trade and financial channels. This is why multilateral cooperation and international policy tuning has become strategic.

Moreover, consolidation will need to be as pro-growth as possible. It should avoid large increases in labour and income taxes and preserve, to the extent possible, growth-enhancing spending, such as on human capital accumulation, R&D and infrastructure development.

Ladies and gentlemen,
The experience of most OECD countries with the global crisis is very different from that of large emerging-market economies. The dynamism of emerging markets, especially in Asia, is providing much needed impetus for the global recovery. But growth cannot be sustained on a global scale unless all regions recover. For that we need to work together to avoid the re-emergence of large global imbalances.

Global imbalances hurt everyone. An interdependent global economy needs to be balanced and harmonious. Because, when our economies are tied together, as the song says: “we all go when we go”.

The crisis is teaching us this principle the hard way.
We look forward to working with China to tackle these challenges.
Thank you.

 

 

 

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