Current Economic Outlook and Main Outcomes from the OECD Forum 2012

 

Remarks by Angel Gurría, OECD Secretary-General, delivered at the French American Foundation in Paris, France, 18 July 2012.

(As prepared for delivery)

Ladies and Gentlemen:

It is a great pleasure to be at the French-American Foundation. Thank you for this invitation. And thank you for your interest in the OECD’s work, particularly in our Organisation’s yearly Forum, where we discuss our global economy’s most pressing issues.

As some of you might know, we invited Jean-Luc Allavena, the Chairman of the Board of this Foundation, to attend this year’s Forum. In turn, he invited me to report on the main outcomes of our OECD Week. This type of inter-institutional dialogue is essential in today’s world, where we all have a complementary perspective and where we all have a shared responsibility for building a better world.

Before I share with you some of the results of our Forum and Ministerial Council Meeting, let me first put this event and today’s conference in context by presenting our perspectives on the current global economic outlook; in particular for the United States (US) and France.

After 5 years of crisis, we are still facing a dire economic outlook.

We are at the fifth year of what I call the greatest crisis of our lifetimes. Countries have made huge efforts through unprecedented multilateral cooperation - and with the support of international organisations - to avoid a major meltdown. And we have achieved much. However, we are still facing huge challenges and a dire global economic outlook.

Our growth projections for years to come are mediocre, with whole regions facing a pronounced slowdown. Our analysis shows that the euro area is likely to have entered a recession for the second time in five years. In fact, we expect a mild contraction of 0.1% in the euro area’s GDP this year before growth picks up again at 0.9% in 2013. 

In the case of the US, we estimate that real GDP growth will increase only gradually by 2.4% this year and 2.6% in 2013.  But this will depend very much on how the US addresses its fiscal challenges in the coming months. As you know, the US is heading towards a series of automatic fiscal adjustments by the end of the year, and this “fiscal cliff”, in the words of Ben Bernanke, will derail the recovery if it is not prevented.

In the case of France, we expect real GDP to grow by 0.6% in 2012 and just 1.2% in 2013.  These are troubling figures for the EU’s second largest economy! Especially knowing that given the persistent deterioration of public finances, there is no room for discretionary measures to offset the economic weakness without risking an upsurge in financing costs.

Even emerging markets and developing economies, the central engines of growth for the global economy in recent years, are losing steam.

This slowdown is terrible news for the more than 200 million unemployed around the world  and for the millions trapped in extreme poverty because of the crisis.  Just last week we launched the OECD 2012 Employment Outlook, reporting that unemployment in OECD countries is likely to remain at 7.7% in 2013 – with some 48 million people out of work.  In the US unemployment stands at 8.2%. In France at 10.1%.  These are unacceptable numbers!

In the OECD as a whole, some 14 million jobs would need to be created to bring the unemployment ratio back to pre-crisis levels. This is a tragedy, not only for individuals, but also for societies and economies which are deprived of powerful assets at times of medium growth.

The tragedy is that in many countries youth unemployment figures double or more than double these grim numbers. In countries like Greece and Spain, nearly 50% of youth are out of work. And the high risk here is that structural unemployment is creeping up at a worrying speed. Today’s young generations, the college and university graduates who should be a driving source of tomorrow’s growth, are being referred to as the “lost generation”. This will have serious implications for our future.

Especially if we consider that all this is happening against a background of increasing inequalities. In our recent publication Divided We Stand, we show that in OECD countries inequalities are already at their highest level for the past half century. The average income of the richest 10% of the population is about nine times that of the poorest 10% across the OECD, up from seven times 25 years ago. In the US the ratio is 14 to 1.  In France, one of the most egalitarian countries in the OECD, the difference is of 7 to 1. 

Growing inequality is producing “a dramatic erosion of trust”, as Diane Coyle argues in her book “The Economics of Enough”. It is indeed not surprising that the young and old are voicing their concerns in the streets, from Wall Street to Bond Street, from Madrid to Santiago to Montreal and many other cities. The roots of each movement may differ, but they are united by a common demand: social inclusion.

The OECD is highly sensitive to this social crisis. And we are shifting our work and priorities to help countries produce a more inclusive, “all on board” type of growth. This is why our OECD Forum and our Ministerial Council Meeting (which take place back to back) this year focused on addressing the current social crisis.

The 2012 OECD Forum: Main Outcomes

Our OECD Forum explored how we can transit “From Indignation and Inequality, to Inclusion and Integrity”; while our Ministerial Council Meeting was held under the Leitmotiv ”All on board: Policies for Inclusive Growth and Jobs.” We normally focus mainly on economic or financial issues, but this time we also went “social”.

So how do we move from Indignation and Inequality to Inclusion and Integrity?

At the OECD we believe that we can achieve this transition by creating a new type of growth; one that is carefully designed to promote social inclusion and sustainability; which discourages greed and speculation; where effective accountability, transparency and risk assessment guarantee a better functioning of market economies.

But the key issue nowadays is: how can governments promote this new type of growth while at the same time trying to rebalance their budgets?

Our recommendation is to Go Structural, because many countries still have significant opportunities to drive economic growth via policy reform; to Go Social, because effective social policies and public services can turn vulnerabilities into opportunities; and to Go Green because we cannot continue to grow based on highly polluting energies and overconsumption.

Our Forum was also the ideal platform to present several important initiatives that Ministers adopted at their meeting, like the OECD’s Skills Strategy, to help governments better connect education systems to the skills that our economies demand today and will demand in the coming 50-100 years. We also launched a Gender Initiative to promote policies that help women and men attain their full potential, which will benefit their personal development and the economy.

And during both our Forum and the Ministerial Council Meeting, we launched a path-breaking initiative called New Approaches to Economic Thinking (NAEC) which will allow the OECD and its member countries to revisit and rethink their economic fundamentals; it will help us understand the root causes of the crisis and draw lessons from it. It will be like looking at ourselves in the mirror, as economic advisers and policy-makers, and evaluating what we see. We think the crisis is a unique opportunity to turn economics into a system of inclusion and environmental improvement.

Ladies and gentlemen,

These are some of the main outcomes of our 2012 Forum. Our NAEC initiative, alongside our Go Structural, Go Social and Go Green objectives will surely be a part of our forum next year, along with a fourth one: Go Institutional. We very much hope that you can participate. We are convinced that truly open dialogue involving all parts of society is the only effective way to address these global challenges.

I think I will stop here to listen to your comments and questions. I’m sure that this part of the conference is where we can share the most interesting ideas.

Thank you very much.

 

 

 

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