Opening remarks by Angel Gurría,
10 June 2016
Minister Jensen, Mr. Slyngstad, Ambassadors, dear colleagues,
It’s a great pleasure to open this seminar today on “Investing for the future in today's global markets”. First of all, let me welcome Siv Jensen, Norway’s Minister of Finance, and Yngve Slyngstad, the Executive Director of Norges Bank Investment Management.
I would also like to thank Ambassador Johansen and her staff at the Norwegian delegation for their role in organising this seminar.
A bleak outlook with major headwinds
Yesterday, Adrian and I launched the latest Business and Finance Outlook. And last week, Catherine and I presented the new Economic Outlook to OECD Ministers. Both publications convey rather bleak messages.
More than seven years after the trough of the global financial crisis, the global economy seems to be stuck in a “low-growth” trap. Trade is still weak, and investment remains sluggish. Growth in advanced economies is limping, and it has declined in many emerging markets. We continue to observe a widespread slowdown in productivity.
In Norway, we project economic activity to be weak in 2016 as petroleum investment falls, and this has a spill-over effect on non-oil sectors. We expect Norway’s mainland output to grow at 0.8% in 2016. And, as in many of our countries today, productivity growth in Norway’s mainland economy is declining. Currency depreciation is improving external demand and strengthens non-oil investment. As new oil-investment projects begin, output growth should pick up gradually – we project 1.8% for Norway’s mainland in 2017.
On a global level, we don’t expect to reach pre-crisis growth levels any time soon. We’re projecting global growth of around 3% this year. And should the many downside risks materialise things could become worse. Brexit is perhaps the most immediate of these risks – to which, by the way, Norway is highly exposed through its financial linkages.
But there are other risks, especially those coming from high corporate debt in many emerging markets. These are mainly linked to the reversal of the commodity supercycle. The second major headwind we see is the L-shaped recovery in advanced economies, partly reflecting the continued weakness of the banking sector and its struggle with non-performing loans.
Emerging economies, where past excess investment is now creating a pile of non-performing loans, will bear the brunt of the impact of the supercycle reversal.
The business sectors in advanced economies have failed to respond with new investment and restructuring which our economies need to generate jobs and productivity growth.
Diminished expectations and fragmentation
So what is blocking business investment and productivity growth? There are many contributors. One of them, as we explain in the Economic Outlook, is the “low growth trap” of diminished and self-fulfilling expectations: Why should companies invest if households are not consuming? And they are not consuming because of low employment and slow wage and productivity growth – which itself is caused by that low investment.
The other main culprit is fragmentation, as captured in the overarching theme of this year’s Business and Finance Outlook: “doing business in a fragmented world”. As we show, fragmentation comes in various guises, through heterogeneity of policies, rules, laws and industry practices that create perverse incentives and block business efficiency and productivity growth.
The way out
If we want to see a return to stronger and more sustainable growth, we need to use all policy levers and put the pieces of our fragmented world back together in a more harmonious way.
The current low interest rates have eased fiscal space: let’s use that space for smart spending in infrastructure, R&D and other long-term projects that can enhance growth for the long run.
But as we have also been saying throughout the crisis, we need to go structural. To address the challenges of low productivity, inequality and low growth we need to deploy as many policy tools as possible, with a broad range of measures involving investment, innovation, competition, regulations, skills, labour mobility and financial market efficiency and resilience. For Norway, this will include stepping up efforts to improve the business environment, to cut red tape, and to press forward with de-regulation – to list just a few of the issues highlighted in our Economic Survey earlier this year.
Excellencies, dear colleagues,
We can’t afford to lose more time: more than seven years since the onset of the global crisis the global economy remains weak, productivity is falling and inequalities are rising. We need to create the right incentives and generate financing for productive investment and inclusive, sustainable growth.
Minister Jensen, Mr Slyngstad: Norway’s natural resource environment has put your country in a fortunate position, despite the many challenges I just alluded to. Much of Norway’s success has been attributed to both sensible policy – sticking with your fiscal rule, for example – as well as sound, transparent management of investments. Congratulations to both of you. You have become a role model for other natural resource-rich countries. We all stand to learn from your experiences and insights. Like the OECD, you are ultimately in the business of delivering Better Policies for Better Lives – both now, and for future generations. Thank you!