Economy

Launch of the OECD Economic Outlook, June 2015

 

Remarks by Angel Gurría,

Secretary-General, OECD

Paris, 3 June 2015

(As prepared for delivery)

 

Ministers, Ambassadors, Ladies and Gentlemen, 

 

I’d now like to move to the next session of our joint programme between the OECD Forum and the Ministerial Council Meeting and launch the Spring 2015 OECD Economic Outlook. I would like to share with you our core messages before handing over to Catherine Mann, our Chief Economist, who will take you through our projections and the key challenges faced by policy makers.

 

In our new Economic Outlook, we show that the world economy remains stuck in a low-growth equilibrium of low investment, high unemployment, low productivity and low wage growth. Years of weak investment and consumption have dragged down potential growth, which in turn has reduced investment prospects for our companies and employment opportunities for our citizens.

 

The process of healing from the biggest crisis in our lifetime has been very slow. And we are still suffering from its legacies.

 

A major concern about the world economy today is why investment, both public and private, has not recovered faster, as it did after previous crises. Despite substantial monetary accommodation in most economies, a generally neutral fiscal stance in most large economies and lower oil prices, investment has not responded and productivity growth has continued to decline.

 

In fact, low investment and productivity growth are intrinsically linked. Companies that do not invest enough are unable to draw the maximum benefit from technological innovations. This explains in part why the gap in productivity between companies in the technology frontier and other companies is growing.

 

The big question we face today is the extent to which investment will strengthen after years of sluggishness. This is why investment is the core theme of our MCM and why it is the topic we chose for a special chapter in this Economic Outlook. And it’s not a coincidence that it is also one of the 3 “I”s of the G20 agenda under the Turkish presidency.

 

Our growth projection rests on the assumption that annual investment growth gradually recovers from less than 2.7% in 2014 to 4% in 2016 on average in the OECD. With a pick-up in investment, we would see the global economy jolt to a higher growth equilibrium that creates more employment and consumption demand.

 

Under such scenario (our baseline), global GDP growth would gradually strengthen and reach close to 4% in 2016 (2.5% in OECD area), around its average level over the decade prior to the crisis. This would be the fastest pace of growth since 2011.

 

Under our baseline scenario, the unemployment rate in the OECD area should fall to 6.6% in 2016. Better than today, but that’s still 42 million people who would be out of work in OECD countries, 8 million more than before the crisis started. Together with still growing inequality, such high levels of unemployment are not only socially unacceptable but are a major drag on growth.

 

But the assumptions about such a recovery in investment cannot be taken for granted.

 

Indeed, to achieve higher investment, governments need to use all the policy tools they have at hand. Balanced policy packages are required that combine mutually reinforcing monetary, fiscal and structural policies.

 

Three measures are particularly important:
 

  • First, collective action is crucial. In today’s highly interconnected world economy, the impact of joint action is bigger than the sum of its parts. The 2% growth and 25/25 gender initiatives by the G20 are good examples of what we have in mind.
     
  • Second, we need to reduce policy uncertainty, which weighs heavily on investment. This starts by adopting credible strategies to ensure fiscal sustainability while allowing the fiscal space for raising public investment in skills, green infrastructure and innovation. We also need effective international collaboration to deliver bold policy action on trade, international taxation and climate change, all major sources of uncertainty for corporations and investors.
     
  • Third, improvements in framework conditions are required. Regulatory barriers still hamper competition and, hence, productivity and investment growth, especially in the services sectors. Access to credit remains a problem in many countries, especially for small and medium-sized enterprises.

 

The strengthening of the global recovery also hinges on avoiding important risks, including a worsening of geopolitical tensions from the “normalisation” of interest rates in the United States, a bad outcome in Greece, and a not so soft landing in China.

 

Ministers, Ambassadors, Ladies and Gentlemen,

 

As Catherine will explain shortly, we are still in a B- world economy. But it is possible to move up from this B- situation. A grades are within reach! However, this will not happen spontaneously. We can make it happen. We can design, develop and deliver better policies for better lives.

 

I now give the floor to our Chief Economist, Catherine Mann.

 

Thank you.