Global Cyclical and Structural Risks - Remarks at Bretton Woods Committee International Council Meeting


Bretton Woods Committee International Council Meeting - Segment Three

Remarks by Angel Gurría,

OECD Secretary-General

Washington DC, 7 October 2016

(As prepared for delivery)



Dear Jean-Claude, Tharman, Donald, Bretton Woods Committee Members, Ladies and Gentlemen:


It is a pleasure to be in Washington to address the Bretton Woods Committee on an issue that concerns us all ─ global cyclical and structural risks. We are approaching a decade since the onset of the crisis and the global economy is still struggling to recover its cruising speed. There are several risks ─ macroeconomic, social and environmental ─ on the OECD’s radar. Let me briefly highlight those that we consider particularly dangerous.


Macroeconomic risks


Two weeks ago, the OECD’s latest Interim Economic Outlook sounded a warning about weak trade and financial distortions in the global economy. Our forecasts suggest global GDP growth will remain flat at 2.9% this year and increase only modestly to 3.2% in 2017. These estimates are slightly below our June forecasts, reflecting weaker conditions in advanced economies ─ including the effects of Brexit ─ that have been only partially offset by improvements in major emerging market commodity producers. We remain stuck in a “low-growth” trap!


International trade has virtually collapsed. In 2016, we expect trade to grow below 2% ─ only the second time trade growth has fallen behind global growth in the past 30 years. This is problematic given that trade is an important driver of productivity growth by enhancing competitive pressures, enabling greater specialisation and improved resource allocation, and facilitating knowledge transfer. An additional concern is the fact that GVCs are beginning to unwind – as outlined in a recent OECD Policy Paper ("Cardiac Arrest or Dizzy Spell: Why Is World Trade So Weak and What Can We Do About It?") ─ leading to weakening trade in China and in other East Asian economies.


Historically low interest rates have generated serious distortions in the financial system.  Very low and/or negative interest rates have underpinned widespread and substantial increases in asset prices. Equity prices remain high and have continued to increase in some economies despite weak profit developments and reduced long-term growth expectations. House prices are also rising rapidly in many economies and credit spreads have tightened even as overall credit quality for corporate bonds has declined. As a result, a relatively small increase in interest rates could catalyse significant price movements and financial volatility. In addition, sustained low or negative interest rates pose significant challenges for banks as well as for pension funds, insurers, and asset managers, and adversely impact retirement incomes and savings.


Social risks


Inequalities of incomes, outcomes and opportunities have reached unsustainable levels. The richest 10% of the population in OECD countries now earn almost 10 times the income of the poorest 10%; this ratio is up from 7:1 in the 1980s. Growing inequality does not only have moral and ethical implications. It also undermines social cohesion and economic growth! Indeed, our data suggest that a rise in inequality by 3 Gini points ─ the average increase recorded in the OECD over the past two decades ─ would drag down economic growth by 0.35% per year for 25 years, with a cumulated loss in GDP at the end of the period of 8.5%. In addition, over the past two decades rising inequality is estimated to have knocked more than 4% off growth in half of the OECD countries. In fact, the link between slowing productivity and rising inequality ─ the productivity-inclusiveness nexus ─ and its implications for growth was the theme of the OECD’s 2016 Ministerial Council Meeting.


Environmental risks


Environmental degradation generates economic risks. The protection of our environment must be a priority. While we have come a long way, reflected in the historic outcomes of COP21 last year, we cannot afford to be complacent. Last week, I opened the 2016 OECD Environment Ministerial Meeting in which I highlighted our latest data and analysis. The information is sobering. By 2060, for example, air pollution would lead to: the loss of 3.75 billion working days per year; a direct market impact of 2.6 trillion dollars per year ─ around 1% of global GDP ─ with particularly large impacts in China (–2.6% of GDP), the Caspian region (–3.1%), and Eastern Europe; and cause 6 to 9 million premature deaths per year.


These and other crucial risks are all global challenges. They are crippling the capacity of our economies to deliver broad and shared prosperity for all. This in turn is creating a major global trust crisis. Trust in what? Well, trust in many of the most important pillars that we have built in the past 100 years, trust in governments, parliaments, political parties, corporations, banks, rating agencies, international organisations, you name it. It is also generating a growing backlash against globalisation, as there is a feeling that it only benefits a lucky few.


Ladies and Gentlemen: It is time to seriously address these risks, these failures. It is time to fix globalisation. It is time to promote more resilient, inclusive and sustainable growth. A new type of growth focused on human well-being, based on a new set of economic concepts and theories, powered by a new type of inclusive and effective multilateral co‑operation. We must become more agile, and seize the opportunities provided by digitalisation to spur innovation, increase productivity and improve well-being.


The OECD is focused on making such changes. We need to modernise our approaches, our systems, our policies, and quickly. Billions are waiting and many are not willing to wait anymore.


Thank you.