Remarks by Angel Gurría, OECD Secretary-General
Paris, 22 May 2012
Good morning ladies and gentlemen.
We are here to launch the 2012 OECD Economic Outlook at a particularly challenging time in the global economic scenario. It should help to frame the discussions of the OECD Ministerial Meeting and the European Union’s Leaders’ summit.
I would like to share with you our core messages before handing over the floor to Pier Carlo Padoan, Deputy Secretary-General and Chief Economist of the OECD, who will elaborate on our baseline projections, the risks to the outlook and the key challenges facing policy makers.
The global economic outlook is still cloudy
At first glance, the prospects for the global economy are somewhat brighter than six months ago. On closer inspection, though, the global economic recovery is weak, considerable downside risks remain and sizeable imbalances have yet to be addressed.
The social cost of this crisis is already huge and, in some countries, it keeps increasing. Unemployment remains high in many countries and in some, it is still growing. Many countries have not yet recovered pre-crisis output levels; while financial and banking sector fragilities remain. Public finances are in a dire state.
Most governments are confronted with a growing confidence crisis fed by the perception that the burden of the crisis has not been fairly shared. Unfortunately, there is increasing evidence that confirms this unfair distribution of costs.
This confidence crisis among economic and social actors is tilting the risks to the downside. A bad outcome scenario in the euro area with implications for the rest of the world cannot be ruled out.
Policy makers need to act decisively
We need decisive policies now. While we are aware of the constraints, we are convinced that it is possible. The need for fiscal consolidation and the record low level of interest rates means that the scope for macroeconomic policy is virtually exhausted. But this is not the only way to promote growth.
As we have been recommending for the past three years, it is high time to Go Structural. Structural reforms are not only our best short-term remedy , but they also offer multiple dividends: they can help us unleash productivity, develop new sources of growth and rebuild confidence. And the best news is, our analysis has shown that if properly targeted and combined, structural reforms can deliver results much faster, and at lower short-term costs than generally expected.
I’m talking about removing unnecessary obstacles to competition and eliminating distortions and regulations that are hampering entrepreneurship and competitiveness; tackling labour market duality to facilitate necessary adjustments while limiting the increase in inequality; making policies to retrain displaced workers and encourage their return to work more effective; enhancing skills by better education; promoting innovation and R&D; improving financial regulation to facilitate the financing of the economy; making taxation more growth friendly; promoting regional development; and making pension systems sustainable.
Even if the full impact of these reforms takes time to materialise, they have impact on growth even in the short-term. And here comes the bonus: some of these structural reforms are effective not only in boosting growth but also in lowering income inequality. This is, for instance, the case for policies facilitating the accumulation of human capital and making educational performance less dependent on personal and social backgrounds.
Countries are already acting. The pace of structural reforms accelerated even before the crisis and some have already started to pay off. For instance, reforms removing the disincentives to work at an older age have already limited the exit from the labour market of older workers during this crisis and improvement of active labour market policies have slowed the increase in long-term unemployment.
This is good news, but it is not enough. Policy makers now have to act even more forcefully. This is essential to create more jobs, generate stronger growth, enhance revenues and rebuild confidence. It is the ultimate challenge!
That’s why we are dedicating our OECD Week to address this crucial issue. We have to break the vicious cycle of eroding confidence and low growth and the only way to break it is by going structural, going social and going green. We’ve said it since 2008, and time is proving us right. It is time to focus on growth. It is time to Go Structural!
I am now happy to give the floor to Pier Carlo Padoan, who will guide you through the outlook and policy challenges in more detail.