DEV50th › Global Economic Prospects and Rethinking Global Challenges
Keynote Address by Angel Gurría, OECD Secretary-General, delivered at EmNet Quarterly Meeting
Paris, 29 February 2012
(As prepared for delivery)
Ministers, Ladies and Gentlemen,
It is a great pleasure to welcome you to the OECD in the midst of this eventful week.
We are celebrating not only the OECD Development Centre’s 50th anniversary but also five years of EmNet: Development Centre @ 50 and EmNet @ 5 – Congratulations!
I want to thank the founding fathers and mothers of EmNet, who have supported this initiative since its early days in 2007. I also want to thank the members who have joined us since then and who keep bringing new impetus and knowledge to our Network.
Seeing you all gathered here today shows just how much the Development Centre has strengthened its role as a forum for dialogue between the OECD and emerging actors, governments, international organisations and, of course, the business community. Especially in these times of great uncertainty, your active involvement is hugely appreciated.
The topics on your agenda for this quarterly meeting are highly opportune, and I just wish to share a few thoughts on the prospects for the global economy, on the risks facing our countries, and what the OECD can do to support our economies at this difficult juncture.
The economic outlook is deeply uncertain.
When we held the last “global” EmNet session in April 2011, the global economy seemed to be on the way to a self-sustained but uneven recovery. While many advanced economies registered positive growth rates, they still faced the challenges of high and unsustainable debt levels and persistently high unemployment. The emerging-market economies, on the other hand, were enjoying much greater dynamism.
Now, just one year on, the global economic outlook is uncertain yet again. In spite of overstretched public finances, the United States economy appears to be recovering somewhat more solidly. In Europe, several challenges remain, including dealing with the sovereign and banking crises, delivering fiscal consolidation in a manner that is as growth friendly as possible, and implementing a host of structural reforms to boost long-term growth and to improve competitiveness. The emerging-market economies are still performing well, but could suffer from financial turbulence and sluggish demand for their exports from OECD markets.
All these elements are casting a shadow on the outlook for the global economy. This is bad news for the nearly 200 million unemployed worldwide and for the 600 million new jobs that we have to create over the next decade to maintain social stability around the world.
It is essential to solve the European sovereign and banking crises.
This has become a major source of global instability. Bold policy actions are therefore required.
Last week’s agreement on a second financial package for Greece is welcome. Reducing the Greek public debt burden from 160% of GDP now to around 120% of GDP by 2020 offers the perspective of sustainable public finances. But this will only come about if Greece delivers on its reform commitments, succeeds in restoring growth and rebalances its economy. In this respect, the financial package is providing the necessary confidence and breathing space for Greece to work on its recovery and for Europe to address its sovereign debt crisis.
In spite of this temporary relief, the euro area remains at a critical juncture. It still needs to restore confidence in the monetary union, and Europe must do more to build its “firewall” against financial contagion.
The new three-year facility of unlimited liquidity provision for banks that the ECB adopted last December has eased the upward pressure on sovereign yields in troubled countries, but a credible and adequate financing backstop for sovereigns is still not fully in place. We still have to build the mother of all firewalls: the more credible it is and the bigger it is, the less likely it is that we will have to use it.
Even more fundamentally, the euro area urgently needs a growth strategy, underpinned by governance reform and credible policies to address unemployment and inequality. Structural reform must be implemented thoroughly to boost competitiveness in the weakest countries, ease saving-investment imbalances and lift the area’s potential growth rate. Governance reforms should seek to create sound fiscal institutions at the national level, a common system for financial supervision for systemic institutions supported by a European backstop and, more generally, a wide-ranging fiscal coordination scheme.
For a sustainable and even recovery, we must ‘Go Structural’, ‘Go Green’ and Go Social
The OECD has a longstanding track record on devising structural policies in the pursuit of sustainable and inclusive growth. Just last week in Mexico, I launched the 2012 edition of our Going for Growth at the G20 Finance Ministers’ Meeting, which delivers a strong message of hope: structural reforms don’t just help to enhance economic growth in the long run; if well designed and implemented, they also boost recovery in the short-term, particularly those reforms aiming to increase employment.
But it is equally crucial that we embark on a more sustainable, greener path of growth, starting immediately. The OECD Green Growth Strategy offers practical policy tools in this direction, helping us reboot growth while addressing the serious risks posed by climate change.
As you know, the stakes are high. Without new government policies, the atmospheric concentration of greenhouse gases could reach 685 parts per million (ppm) CO2-equivalents by 2050. This is well over the concentration level of 450 ppm CO2 that scientists say is needed to have at least a 50% chance of achieving the goal of limiting global warming by at most 2°C. The costs of inaction are high and they are getting higher the longer we delay taking decisive policy measures to bring “green” and “growth” together.
To come out of the crisis, of course we need to generate growth, but not just any type of growth: we must ensure that we grow in a sustainable way – and this applies to developed, emerging and developing countries alike – to mitigate long-term risks to our environment and to our livelihoods.
We need a new economic model; not only greener, but also more inclusive.
Increasing inequality is threatening the fabric of our societies.
The economic crisis and its social costs have also added urgency to dealing with inequality. In OECD countries, the average income of the richest 10% of the population is today about nine times that of the poorest 10% - a significant increase compared to thirty years ago.
Inequality has also been on the rise in emerging economies. Fast economic growth has helped to reduce the prevalence of poverty, but income inequality has increased from already high levels. The social contract is starting to unravel in many countries, with inequality being a powerful driver of social discontent.
To maintain political and institutional stability we have to implement policies that help us meet our populations’ expectations for a better life for themselves and their children. Tax and benefit policies are of course the most direct instrument for tackling income inequality. But there are other policy levers, including creating more and better jobs, notably by “up-skilling” the workforce. Another important instrument especially suited for emerging-market economies is the development and provision of high-quality public services such as education, health and family care.
Ladies and Gentlemen,
Tackling the economic crisis, implementing structural reforms, generating jobs, mitigating climate change and addressing inequality are huge challenges, which apply to OECD countries, emerging economies and, indeed, developing countries alike. These are challenges which we will overcome more quickly if we work together.
It is high time we revised our conceptual framework, rethought our conventional wisdom and engaged in greater knowledge and best-practise sharing. We have much to learn from the emerging countries and their social and economic transformation in the past decades, and from the recent crisis in the developed world.
We are embarking at the OECD on a process called “New approached to Economic Challenges” in which we will precisely do that. I count on your contributions in this important and fascinating endeavour.
EmNet, the Development Centre and the OECD are a unique space to share our knowledge, to learn from each other and help build the necessary consensus to make reforms happen and flourish.
Your ideas can change this world, and we are here to help you.