Remarks by Angel Gurría, OECD Secretary-General, delivered at G30 International Banking Seminar: Economic, Financial and Trade Challenges Ahead
12 October 2014, Washington, D.C.
(As prepared for delivery)
Dear Friends and Colleagues,
Dear María, Tharman:
I am delighted to participate in the 29th edition of the Annual G30 International Banking Seminar. This gathering has great relevance for the health of the world economy. We are gathered here with the policy architects and engineers that can deliver a brighter economic future. This is a unique opportunity; we should make the most of it.
An uncertain economic outlook
As we have just heard from the Governors of four key central banks: six years into the crisis and a robust recovery is still distant. The global economy is continuing to expand at a moderate and uneven pace. International trade, global investment and credit are still hesitant.
The threat of so-called ‘secular stagnation’ remains high, especially in Europe. Meanwhile, new global risks gather on the horizon: the build-up of debt in emerging economies, the return to bullish risk-taking in global financial markets, and rising geopolitical tensions in Eastern Europe and the Middle East.
As I told European leaders a few days ago at the EU Employment Summit, responsible macroeconomics, accommodative monetary policies and fiscal consolidation have borne important fruit, but now it’s time to focus on a strong recovery.
Let me briefly share our views on three specific sectors that are strategic for growth and jobs: finance, investment and international trade.
Fixing the Growth Engine: Reforming Finance, Investment and Trade
The epicentre of the crisis has been the financial sector. This is an area where deep structural reforms are needed. We need a global financial system that is well capitalised and well regulated, that provides sufficient credit and an efficient allocation of resources.
The OECD is helping advance on this direction, designing and improving cross-border consistency of existing structural bank reforms in a G20/FSB led project, with the IMF. Separating banks’ businesses can improve risk-pricing and financial stability and make banks more resilient.
We must also tap into the financing potential of the non-banking sector. The work on Institutional investors and long-term investment by the G20/OECD Task Force, should contribute to the delivery of important outcomes at the Brisbane Summit next month. We will also be launching a new large Network on Institutional Investors engaged in Long-Term Investment business with the objective to develop further consultation and dialogue.
It is also crucial to improve capital-market based financing for SMEs, expanding the range of instruments to include securitisation and other forms of non-bank debt financing, equity finance and crowd-funding.
We also need to implement effective reforms and policies to improve the framework for investment. Investment rates have dropped in many countries since the financial crisis. We need to incentivise economic risk taking, and overcome companies’ reluctance to commit capital to expand their businesses, especially in critical areas like innovation and infrastructure.
Only in the US, the American Society of Civil Engineers estimates that the total current infrastructure investment gap is estimated to be close to USD 1.7 trillion and there’s a need for additional investments of about USD 3.6 trillion by the end of 2020.
The other key sector for global growth is international trade. This is an area where we also face crucial challenges. Both trade flows and multilateral action seem to be stalling again. WTO members missed the July 31st deadline to implement the Trade Facilitation Agreement (TFA).
The OECD has shown that implementing the TFA could reduce trade costs by as much as 14% for developing countries and up to 10% for developed countries. This is now at risk. WTO members must find a path forward as they continue discussions in coming weeks.
We have also been working with the WTO on a new metric to better measure trade flows. Our work on Trade - OLD (GVCs) can become a key tool to boost trade dynamism. We are also collaborating with the WTO, UNCTAD and WB to study the policy environment that is conducive to a fuller participation of developing countries in GVCs.
Our analysis intends to inform policy actions that G20 governments can take. In an increasingly inter-connected global economy, where more than 70% of trade is in intermediate goods and services, integration into GVCs today will determine future trade and FDI patterns as well as growth opportunities.
As we double our efforts to strengthen growth, we must also ask: what is the type of growth we need? Growth that multiplies uncertainties, exacerbates inequalities and sends us on a collision course with nature? Or, growth that promotes resilience, fosters equality, and protects our planet?
A new type of growth: it’s about quality, not just quantity
The answer is clear. We need growth that is more resilient. So we need to improve the productivity and the competitiveness of our economies by investing more in skills, infrastructure and innovation.
New policies to promote investment in Knowledge-Based Capital (KBC) can be of great help. Investment and growth is increasingly driven by investment in intangible assets. In the US, KBC contributes more than 20% to average productivity growth.
We also need growth that is more inclusive. At the OECD we still have 45 million people out of work, 12 million more than before the crisis. So we are helping countries design innovative labour policies to address gaps in employment protection between permanent and temporary workers; facilitate labour mobility; and help the unemployed find jobs.
We are also providing new tools to measure the quality and level of skills through a First Survey of Adult Skills (PIAAC) and implement national skills strategies in light of other countries’ best practices.
Finally, we need growth that is more sustainable. New OECD projections suggest that world GDP in 2060 may cumulatively shrink by between 0.7% and 2.5%, should global temperature increase between 1.5 and 4.5 degrees Celsius. The potential damage to nature, livelihoods and whole economic sectors goes way beyond these numbers.
This is why the OECD has launched a Green Growth Strategy and created new policy tools to help countries transit to zero net emissions in the second half of the century, including recommendations on carbon pricing and eco-innovation, among many other actions.
Ladies and gentlemen:
We are carrying six years of crisis on our backs. We are facing highly complex economic, financial and trade challenges. And we are seeing people, from the job-seeker to the long term investor, losing trust. It’s time for bold decisions. It’s time for effective reforms.
We can certainly escape the ghost of secular stagnation and we can achieve a more resilient, more inclusive and more sustainable growth. But we will only succeed by using new economic thinking, focusing on the quality of growth. This is what we are doing at the OECD through our New Approaches to Economic Challenges initiative and our Inclusive Growth project. And we are ready to partner with the banking sector and the G30 to keep finding new solutions, new theories, new and better policies for better lives.