Remarks by Angel Gurría, OECD Secretary-General, delivered at the APEC Finance Ministers Meeting: Session 1, Global & Regional Economic Outlook
22 October 2014, Beijing, PRC
(As prepared for delivery)
Minister Lou, Ministers, colleagues,
I am delighted to participate in this APEC Finance Ministers’ Meeting. With approximately 40 percent of the world's population and about 44 percent of world trade, APEC is of great importance to the health of the global economy.
Unfortunately, the global economy is not in great health.
It continues to expand at only a moderate and uneven pace. Our growth forecasts for this year and next have just been lowered. Global investment, credit and international trade, are still hesitant.
The threat of so-called ‘secular stagnation’ remains high, especially in Europe. Meanwhile, new global risks gather on the horizon.
Within this picture, APEC economies are faring relatively well and China continues to be a locomotive for the world economy, even at a lower cruising speed.
The US expansion is gaining strength, and growth remains dynamic on both sides of the Pacific with two notable exceptions – Japan, where the April consumption tax hike led to a larger-than-expected contraction of activity, and Russia, which barely avoided a recession this year.
However, even those that are currently doing well cannot be completely sheltered from the storm. It is critical that we get the engine of global growth up and running once again.
Fixing the Growth Engine: Reforming Finance, Investment and Trade
The epicentre of the crisis was the financial sector. This is an area where deep structural reforms are still needed. We need a global financial system that is well capitalised and well regulated, that provides sufficient credit and an efficient allocation of resources. Separating banks’ businesses can improve risk-pricing and financial stability and make banks more resilient.
The OECD is supporting these efforts, designing and improving cross-border consistency of existing structural bank reforms in a joint project with the Financial Stability Board and the IMF.
We also need to improve the framework for investment. Investment rates have dropped in many countries since the financial crisis, including in several members of the APEC.
Some trends – such as declining inward and outward FDI in OECD countries - are truly worrying as they can be interpreted as “‘investment de-globalisation’.
So, we need to reverse those trends, incentivise economic risk taking, and overcome companies’ reluctance to commit capital to expand their businesses, especially in areas like innovation and infrastructure. The policy framework for investment, domestic as well as foreign, must be strengthened in many countries.
The APEC region is no exception: our investment policy reviews of several of its members suggest that framework conditions for investment complicate efforts to improve productivity, to bridge the competitiveness gap and to move upwards in global value chains.
The third key sector for global growth is international trade. Both trade flows and multilateral action seem to be stalling again. The OECD has shown that implementing the Trade Facilitation Agreement could reduce trade costs by as much as 14% for developing countries and up to 10% for developed countries. This is now at risk.
While some countries in Asia, such as Singapore, maintain world class standards for trade facilitation, the region as a whole performs well below global best practice and has the potential to reduce unnecessary trading costs by up to 16%.
The OECD has also been working with the WTO on a new metric to better measure trade flows. Our work on Global Value Chains (GVCs) has become a tool to inform governments of policy actions they can take to boost trade dynamism.
OECD analysis shows that participation by APEC economies in GVCs has grown across the board. Natural resource rich economies such as Chile, the Russian Federation, Australia, Indonesia and Brunei Darussalam are engaged in upstream activities through sale of raw materials for further processing.
Others, such as the United States, Japan and Singapore are engaged in the sale of high-skill intensive products and services.
This diversity in the APEC region suggests that there are good opportunities to exploit these complementary sectoral specialisation patterns through further regional economic integration. Such efforts will yield fruit if they address the key barriers impeding participation in GVCs, particularly in the area of trade facilitation and services.
It’s about the quality, not just the quantity of growth
While we take collective action to fix the engine of global growth, we also need to promote resilience in each individual economy. Potential growth has slowed in most APEC economies, calling for action to remove obstacles to stronger productivity and labour growth.
In the emerging economies of the APEC, productivity is lagging far behind the levels in its advanced members – none of them goes beyond 20% of the productivity level of the United States!
Bridging the gap is essential if the emerging members of the APEC are to escape the so-called “middle-income trap”. As for advanced economies, in the APEC and beyond, they have been facing a trend slowdown in productivity gains, even before the crisis.
There is clear need to take action. For example, action to eliminate structural bottlenecks to labour market participation and to boost competition in product markets. New policies to promote investment in Knowledge-Based Capital (KBC) and skills can also be of great help. Investment and growth is increasingly driven by investment in intangible assets. In the United States, KBC contributes more than 20% to average productivity growth.
However, these reforms should not just be about growth per se. We must be sure to enact reforms that promote resilience, foster equality, and protect our planet – quality growth. For instance, we need reforms that promote inclusive growth that will provide jobs for the 200 million people unemployed in the world.
We should also strive for more sustainable growth. 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 – Asia – Pacific economies know all of this first hand. The OECD has launched a Green Growth Strategy and created new policy tools to help countries transition to low carbon growth. This is a big task for Finance Ministers – tax the enemy!
It is time for bold decisions and effective reforms. We have to fix the global financial, investment and trade systems and we have a duty to our citizens and future generations to deliver quality growth. APEC economies can play a crucial role in making this happen. Please count on the OECD in the pursuit of better policies for better lives.