It is a pleasure to address the Durham Union, to discuss the important and pressing subject of “Building Back Better: The Future of the World Economy”. Thank you for the invitation.
I’d like to start by acknowledging that all was not well before the pandemic. Our past growth was unsustainable and left many people behind. It was also, at least in the advanced economies, increasingly tepid. Many of our economies have been struggling for more than a decade with slow productivity growth, declining business dynamism, persistent long-term unemployment and very unequal opportunities.
The recovery from the pandemic is thus an opportunity to set our policies right, to achieve growth that is stronger, equitable and more resilient. And for this, governments have to act now and be bold.
Most countries are still facing serious challenges related to the COVID-19 pandemic. Nonetheless, the global economic outlook has improved over recent months. Our latest analysis projects a global GDP growth rate of 5.6% for 2021 and 4% in 2022. However, uncertainty remains very high, and the pace of the recovery still depends on the speed of vaccination and the management of the health crisis.
If governments accelerate the rollout of vaccines worldwide, global activity can return to where we thought it would have been without a pandemic by late 2021. But if vaccinations are slow and the virus remains in high circulation, global GDP could be nearly 2% below our central projection by late 2022, with an extra loss of 2.6 trillion US dollars. For reference, this is roughly the size of the French economy.
That is why a top policy priority must be vaccine production and deployment. The resources required to provide vaccines to lower-income countries are small compared with the gains from a stronger and faster global economic recovery. None of us can recover until all of us recover.
The pandemic has also brought the risk of long-term scarring effects, particularly for people with low skills, workers in hard-hit sectors, and young people. Across the OECD economies, almost 10 million more people are unemployed than prior to the crisis. Youth unemployment rate surged to nearly 20% in April 2020, and has only partially retreated since, declining to nearly 14% in February 2021 but still significantly above pre-pandemic rates.
Another area where the pandemic has disproportionately affected the young is education. Recent OECD estimates suggest that during the first phase of the crisis, students in grades 1-12 could have lost a third of a school year of learning. This could reduce learners’ lifetime incomes by about 3%, and lower a typical country’s GDP by an average of 1.5% over the remainder of the century. Many children also lost contact with teaching staff, increasing the risk of disengagement and dropout.
I have presented a bleak scenario. But there is no doubt that we will recover.
The question is: what kind of recovery will we promote? In other words, to what extent will we harness the opportunity to reinvigorate economic growth and ensure its resilience, sustainability and inclusiveness?
We must address both new and pre-existing structural challenges. The OECD report Going for Growth 2021, which we released two weeks ago, identifies three key priorities for structural policy action.
First, building resilience and sustainability. Structural policies can strengthen the first line of defence against shocks by improving the coverage of health care and social safety nets and by investing in critical infrastructure. Policies can also help direct investment and technological change to re-direct our economies and serve our environmental objectives. I focused more on these issues in my fifth and final climate lecture as Secretary-General of the OECD, which took place last week virtually, and which can be replayed at the OECD Environment Youtube channel.
Second, facilitating reallocation and boosting productivity growth. This means helping workers to switch jobs, entrepreneurs to launch innovative ventures, and winding-down unproductive and polluting activities. For instance, nearly half of young people expressed an interest in entrepreneurship, yet only 7.4% actively tried to start a business across the OECD. Educational opportunities, improved support for entrepreneurship, and financial education could all help.
And third, supporting people through transitions. Whether they need to upskill to find a new job, whether they have to look after their children or the elderly and cannot work, or whether they fall sick.
Providing the right support to the youth, for example, is especially important in transitions from school-to-school and school-to-work. This is today more relevant than ever, as companies have curtailed hiring, internships and apprenticeships. These lost opportunities risk creating long-lasting scarring effects on young people’s career prospects as well as on broader social and well-being outcomes. The OECD is working on updating its Youth Action Plan, which will aim to support government-wide strategies focused on young people.
Finally, COVID-19 has shown us that the world’s challenges transcend borders. This year’s Going for Growth report, for the first time, presents structural policy priorities in a several areas where international co-operation is key. These areas include the immediate priority of COVID-19 vaccinations, as well as the taxation of multinationals in the digital economy, where the OECD is working to reach a global solution soon.
The COVID-19 pandemic has changed our world profoundly. But it can also help us change it proactively. We must harness the opportunities behind such massive support measures, and reinvent and improve our economic systems. Perhaps the title of this event should be “Building Forward Better”, as I like to say.
The OECD will continue to work intensely to support governments and policymakers as we set our sights on achieving fairer, greener and more resilient growth for future generations.