Opening remarks by Angel Gurría
Paris, 28 November 2017
(As prepared for delivery)
Ladies and Gentlemen,
I am glad to be here once again to launch our twice-yearly Economic Outlook with our Chief Economist Catherine Mann. But it is the last time that Catherine will oversee and release the Outlook. After three years, she is leaving the OECD to go back to the United States. I would like to take this opportunity to thank her for all that she has done and to pay tribute to her many accomplishments during her time as Chief Economist.
The good news is that the global economy is gaining momentum. Global growth is accelerating from 3.1% in 2016 to a projected 3.6% this year and 3.7% next year. Over the past couple of quarters global GDP has actually been growing even faster than this, at an annualised rate of over 4%.
Moreover, for the first time in a decade, the world is growing in sync, with none of the large economies experiencing a recession.
But as we said already at the time of our Interim Outlook last September, the situation may be better, but it is not good enough. For one thing, there are threats to the sustainability of the improved growth rates that we are now seeing. For another, the growth still needs to become more inclusive as well as more environmentally sustainable.
As regards the threat of the current improved growth being derailed, this Economic Outlook has a chapter on private debt dynamics which flags a major risk to the projections. Indebtedness of households and corporations has reached record levels in many countries. Particularly worrying are the high levels and continued growth of corporate debt levels in China, given the importance of China to the world economy. Also of concern are the high levels of household debt in a number of advanced economies, mainly associated with mortgage lending. As the Outlook shows, real estate boom-and-bust cycles have been good predictors of recession in OECD economies, and danger signs are flashing in a number of them.
Designing policies to contain risks without unduly hindering growth is no easy task. Some countries are using prudential tools to prevent excessive leverage, and there is more that could be done in that area. But the Outlook also talks about the need to address the deeper roots of financial fragilities, such as the debt bias in corporate taxation.
With regard to the quality of growth currently, there are several issues of concern. A key one is the failure of output gains to feed through into real wage growth. This has been the main reason why median real household incomes across the OECD have been stagnant for much of the post-crisis period, while real incomes at the lower end of the distribution have actually fallen. Growth has to be made more inclusive.
Inadequate real wage growth is in part – though only in part – linked to slow average productivity growth, which remains another central concern. The weakness of productivity growth is particularly puzzling given the ongoing digital revolution, which should be unlocking efficiencies and allowing each worker to produce more. The OECD’s two-year Going Digital project, which is nearing its half-way point, is looking closely at this question, among others, and our annual Global Strategy Group meeting will be talking about this later today. Part of the answer, discussed in the Outlook, is undoubtedly that sluggish business investment in OECD economies in recent years has meant a slowdown in the rate at which technological progress is embodied in the capital stock. The improvement in demand growth should help to revive business investment, but we see the need to remove structural impediments to productive investment as well.
Another concern about the quality of growth is that, with the cyclical upswing in the world economy this year, global carbon emissions have begun to grow again after remaining flat over the previous three years. It is imperative that the world achieves a decisive decoupling of emissions growth and GDP. Our report Investing in Climate, Investing in Growth, which we released in May, showed that with the right policies there need be no conflict between addressing climate change and achieving more rapid growth.
More generally, this Economic Outlook points the way to integrated policy packages that could deliver the strong, sustained, inclusive growth that is urgently needed. I now turn it over to Catherine to say more about those recommendations, along with other details of the Outlook.