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OECD Secretary-General

ITAM Seminar on Economic Perspectives, 8 January 2021

 

Remarks by Angel Gurría,

OECD Secretary-General

Paris, 8 January 2021

Dear Rector Arturo Fernández; President of the Ex-Alumni Association Xiuh Tenorio; dear Benito Solís; friends from ITAM:

I am very pleased to be participating in the 2021 ITAM Seminar on Economic Perspectives, this year in its virtual format. I would like to thank the Rector, Benito Solis and the ITAM community for this invitation.

What a time we are living, and what perspectives lie ahead.

We are facing the first genuinely global crisis of our existence. An unprecedented worldwide crisis. The COVID-19 pandemic has had, and is having, a dramatic impact on health, economic growth, employment and social welfare.

The impact on health: as we start 2021, already more than 85 million cases and over 1.8 million deaths had been recorded worldwide.

The impact on growth: according to our most recent estimates, global GDP will shrink by 4.2% in 2020, before recovering at an average rate of approximately 4.2% in 2021 and 3.7% in 2022. In Mexico’s case, GDP is set to shrink by around 9.2% in 2020, and we expect a recovery rate of about 3.6% in 2021. While we expect vigorous recovery this year, many economies will end 2021 with production levels 4 to 5% lower than expected.

The impact on employment: in the space of a few months, COVID-19 destroyed all the jobs created since the 2008 financial crisis. Unemployment in OECD countries increased from 5% in February to almost 7.3% in September and youth unemployment rose from 11% to over 14% over the same period. Despite recent improvements, the number of underemployed workers in many countries remains a concern.

The impact on social welfare: the COVID-19 crisis has had a very strong impact on the welfare of the middle and low income classes, but especially on the poorest people working in the informal sector. According to World Bank estimates of October, between 88 and 115 million people will fall into extreme poverty in 2020 (the first rise in extreme poverty in 20 years). COVID-19 has had a much stronger impact on the countries with the greatest social inequalities, as is the case in Mexico, where nearly 78% of the population lives in poverty or a vulnerable situation, according to pre-COVID estimates by the CONEVAL.

While it is true that we are beginning to see the light at the end of the tunnel for the first time since the COVID-19 crisis began, we are still facing major challenges around the world, and governments will need to continue to play an important and active role in stabilising and reviving economies.

In this respect, one thing needs to be made crystal clear: that the dilemma between saving lives and saving livelihoods is a false dilemma. I have been repeating this over and over in different forums. First and foremost, we must do everything possible to protect and save lives, which will in turn help mitigate the economic and social repercussions. And the only way to do this is to beat the virus.

At the OECD, we estimate that it will take about a year, most of 2021, to reach the levels of vaccine distribution and delivery that will take us to a safer situation. Therefore, over the next few months, we will have to continue fighting the virus with the already known measures and precautions, while implementing recovery strategies.

The OECD recommends moving forward in four parallel areas: 1) the use of testing, both rapid and PCR, and the test-track-trace of the virus; 2) antibody (serology) tests; 3) supporting the capacities needed to fight against the pandemic; and 4) a gradual lifting of restrictions, based on the three previous elements.

At the same time, we have to start building back better. I am referring to the Triple B strategy (Build Back Better), with support focussed on programmes, investments and businesses that promote inclusion and sustainability.

In Mexico’s case, it is essential to strengthen efforts and measures to confront the virus and protect the lives of Mexicans. The World Health Organization recently sent out a firm call to the Mexican authorities to strengthen these measures and reduce the very high rates of infection and deaths.

At the same time, reconstruction measures will have to be designed and implemented to turn the recovery into a driving force for transformation and modernisation of the country.

This year it is essential to increase the budget to combat the virus and to support small and medium enterprises, entrepreneurship and the creation of decent and well-paid jobs. At the same time, Mexico has to make progress in the country’s pending structural reforms.

First, macroeconomic and financial policy. Efforts to increase government revenues, which represent only 16% of GDP compared to the OECD average of 34%, must be accompanied by a strategy to transform fiscal policy into an instrument of entrepreneurship, social protection and inclusion.

Second, strengthening the health system. COVID-19 has proved it. Mexico must urgently increase spending and investment in the health sector, which today has one of the lowest budgets in the OECD. Health expenditure in Mexico represents less than 6% of GDP, compared to an average of 9% in the OECD.

Third, strengthening social protection and welfare systems among the most vulnerable populations. This is fundamental, since in Mexico most workers operate in the informal sector and nearly 35% of the population lives in overcrowded conditions.

Fourth, restructuring our economy to address climate change and protect the environment, biodiversity and health. Mexico must heed this warning, and seize the moment to move forward in decarbonising its economy and accelerating its transition to renewable energies.

Fifth, strengthening our education systems. Education remains our Achilles' heel. We urgently need to improve teacher training, coverage and quality, remote education, and school infrastructure.

Sixth, promote the use of digital technologies. We need to improve the connectivity and digital skills of the population, as only 64% is connected to the Internet and 40% of adults have very low levels of digital skills.

And seventh, strengthening support for businesses, especially SMEs. Progress must be made in simplifying and standardising business regulations; programming cuts in working hours; and deferring tax, social security, income, debt and profit payments.

Dear friends,

The crisis we are facing is forcing us to think differently, to act differently. We are facing an unprecedented challenge, and at the same time a great opportunity to create a new economic system that works for everyone, a new social contract based on inclusion and sustainability, a new globalisation that is more harmonious, more humane, based on multilateral cooperation.

Mexico can count on our full support to design, develop and implement better policies for better lives.

Thank you.

 

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