Remarks by Angel Gurría,
13 March 2017
Mr. President of CaixaBank, Ladies and Gentlemen:
What a pleasure it is to be in Madrid once again to participate as a speaker in the La Caixa forum on Economy and Society. I am grateful to Caixa Bank and its president, Jordi Gual, for this invitation.
Tomorrow we shall be presenting the OECD’s 2017 Economic Survey of Spain, so I would like to prepare the ground a day in advance by sharing with you some of the OECD’s thoughts about the world economy. The maxim of Ortega y Gasset – "I am myself and my circumstances" – applies fully to the economic affairs of a nation like Spain that is open and integrated into the world economy. It is difficult to speed up recovery in the present-day circumstances of Europe and the world economy. Spain is doing its part, but the headwinds are not helping. Let me explain.
The world economy is still languishing in a low-growth trap. According to our estimates, global GDP growth will recover only modestly in 2017, from slightly less than 3% in 2016 to 3.3%. For 2018, we are projecting a slight improvement to around 3.6%. The Euro zone will be growing at 1.6% in 2017 and 2018. In this complicated setting, the Spanish economy's recovery will start to slow down, dropping from annual growth of 3.2% in 2016 to 2.5% in 2017, and 2.2% in 2018. This highlights the importance of pursuing the reforms, with the help of Spanish SMEs, entrepreneurship, and the banking sector which, although well-capitalised, is faced with shrinking profits and a still-low level of banking activity.
Growth in Spain, as in many other OECD countries and in a large number of emerging economies, remains disappointing. And it is very difficult to emerge from this cycle, because expectations for low growth tend to limit spending decisions and hence growth in our economies' potential output. This is still holding back international trade and investment, at a time when productivity is slowing and the productivity gap between the more advanced firms and the rest of the economy continues to widen.
All this has a high social cost, reflected in the low growth of incomes in numerous households and the high levels of unemployment and inequality that persist in many countries, including Spain. The worst thing is that this deterioration in living standards of the middle class and the workforce becomes an obstacle to improving economic growth. But it is also an obstacle to undertaking reforms and implementing new policies, as people have lost their trust in the capacity of their governments, their institutions, their policies and their politicians.
Of course there has been some progress and there are some positive signs that can already be seen in rising business and consumer confidence. Yet global growth still falls short of the 4% average of the last two decades preceding the crisis. And this weak recovery is being affected by a series of risks, and a new and constant uncertainty.
The OECD Interim Economic Outlook that we presented last week highlights a series of factors and risks that could cloud the outlook for growth, modest as it is. For example, it underlines the disconnect that exists between financial markets and the real economy, as well as the potential volatility of financial markets in the face of divergent interest rates in systemically important economies.
Yet beyond the risks to financial markets, we are concerned about policy proposals that favour protectionism. An increase in international trade barriers in the main exporting and importing powers – the United States, China and the European Union – could have a very great impact on trade and on GDP, especially in the economies where those barriers originate. The call to economic nationalism is a source of uncertainty that is very difficult to assess or control, mainly because stakeholders and markets do not know how this kind of talk is going to translate into policies. As a result, investment decisions are being kept on hold.
The risks in backtracking on international trade liberalisation are great – millions of jobs around the world, including here in Spain, depend directly or indirectly on commercial exchanges. We have calculated that an increase in trade barriers in the lead trading countries of Europe, the United States and China – one that would take us back to the tariff levels of 2001 – would cut world GDP by one percentage point and would have a particularly sharp impact on the economies that impose these restrictions. The application of new tariffs or border taxes would spark an international trade war that would deal a very heavy blow to the already weak recovery of the world economy. We cannot allow ourselves this luxury. This is not the time for walls and tariffs, it is a time for pulling together to build a globalisation that works for all.
Today, policies and reforms must focus on boosting the resilience of our economies, but also on constructing the environment needed to improve productivity while at the same time enhancing social inclusion and the quality of life for large segments of our populations.
It is essential that the reforms we are promoting translate into policies that will multiply opportunities for those who have the fewest, promote an effective income redistribution, and enable societies to derive the greatest benefit from globalisation.
Although globalisation has served to increase the size of the pie and to lift nearly a billion people out of extreme poverty, the great benefits of this process have not been felt by the working majorities. Today there is a sense of disappointment and frustration with the processes of economic liberalisation and regional or international integration. And this should come as no surprise. Inequalities have reached alarming levels in the OECD, where the average income of the richest 10% is nearly 10 times greater than that of the poorest 10%. A 2016 report from Credit Suisse estimates that the wealthiest 10% have 89% of the world’s wealth, while the top 1% has 50% of global wealth. And as you know, Oxfam has documented the fact that the eight richest individuals on the planet have the same wealth as the poorest half of the world population, or 3.6 billion people.
We should not be surprised, then, that calls to populism, protectionism or exclusive nationalism, to paraphrase Paul Collier, are finding political and electoral resonance in the majority of our countries.
Globalisation must be an instrument for inclusion, a system that guarantees and promotes the creation of opportunities for the majority, and not just for the few. It is not enough just to explain more clearly to people the great benefits of globalisation. Today we need new policies to empower people with the skills and abilities that the labour market demands in the knowledge economy. Policies to make our education systems more efficient, equitable and "globalising". We need policies that focus on the bottom 40%, to break down the barriers that deny them access to digital technologies, innovation, financing, and entrepreneurship. Policies that focus on our youth, who are those that have suffered most in this latest crisis. And policies that will help to weave what we in the OECD have called the Productivity-Inclusiveness Nexus, something that is of special relevance for Spain.
Yet we also need stronger and more effective policies for redistributing income and reinforcing the welfare state. Measures to enhance the role of tax systems as instruments for empowering the vulnerable and reducing inequalities. And policies that will facilitate activation, training and labour mobility. And, of course, policies to strengthen the integration of migrants, a crucial component of an inclusive globalisation.
Ladies and Gentlemen:
In a globalised world economy, to think that we can go about building progress alone, in isolation, is an illusion. To think that the progress of the few is viable when so many people are frustrated is a mirage. To think that exclusive nationalism, protectionism and de-integration are instruments of progress is a grave error.
Let us work together to build a globalisation that is more humane, more inclusive, and more environmentally friendly. The economy owes itself to society, it must work with society, it must benefit society. The OECD is counting on Spain to continue promoting a growth that is more humane, more inclusive, and more sustainable.
Thank you very much.