Remarks by Angel Gurría
18 October 2019 - Washington, United States
(as prepared for delivery)
Ministers, Central Bank Governors,
We have been warning about rising risks to the global economy for a while. Now we are not only talking about risks. It is happening with considerable swing.
According to our latest outlook, global growth will be 2.9% this year and barely 3% in 2020, the slowest projected growth rates since the financial crisis. In May, our forecasts were 0.3-0.4% higher. Among the G20, the economic outlook has been deteriorating fast for almost all economies in the group, both advanced and emerging.
As new trade restrictions in the G20 have been piling up at an accelerated rate since last year, global trade growth has stalled and manufacturing has taken a hard hit. High policy uncertainty is becoming entrenched, putting brakes on investment plans. While G20 investment growth was at a brisk annual rate of 5% in early 2018, it fell to just 1% in the first half of this year. And this is far from a worst-case scenario – considering other risks on the horizon, such as a disorderly Brexit or financial market volatility.
This is particularly dangerous in an environment where productivity growth has already been on a structural decline. The disruptions to trade, cross border investment and supply chains from rising trade tensions harm supply and weaken medium-term growth prospects.
Those developments, in turn, may reduce hiring intentions and working hours, placing downward pressure on household incomes. This could further fuel already high levels of inequalities, corrode the social fabric, lead to political instability and elicit a dangerous cycle of weak growth and low trust.
Rather than erecting new barriers, trade policy should focus on addressing the long-standing issues that impose unnecessary costs on traders, such as subsidies and forced technology transfer. We must also look at pressing new challenges, such as the interplay of trade and the environment and trade in the digital era.
Policymakers should also take action now, to lift us out of the trap of a long-lasting slowdown. Monetary policy has done its job, but it cannot and should not be left alone. Governments need to be much more ambitious in their investments – there are massive needs in digital, in education, in clean transport and energy. A number of G20 economies have already announced a sizeable fiscal expansion for 2020. Low or negative yields on long dated government bonds also offer a low-risk opportunity for many countries to address serious infrastructure shortages and strengthen longer-term sustainable growth.
With ultra-low interest rates and slowing activity, the G20 must chart the way towards a swift global economic rebound. Thank you.