Remarks by Angel Gurría
11 April 2019 - Washington, D.C.
(As prepared for Delivery)
Dear Ministers and Central Bank Governors,
The global economy is continuing to lose steam, faster than was anticipated when we last met.
And risks are biased on the downside. Materialisation of these risks, alone, or combined, could derail the global outlook, all the more that trade and financial integration have made the G20 economies highly interdependant. In this context, I would like to insist on the benefits of policy cooperation. But before, let me recall briefly the potential impact of four of these risks:
First, trade. If no progress is made on trade discussions, by 2020-21 output in the United States and China could be around 0.2-0.3% lower than otherwise.
Second, China. The government has put in place sizeable stimulus measures, but if China’s demand growth was to decline further, in spite of these stimulus, by 2% for two years like in 2015-16, trade and confidence would be hurt, lowering global GDP growth by over 0.5% in the first year already.
Third, Europe’s outlook is fraught with uncertainties ranging from Brexit, the possibility of tariffs on cars, the extent of the slowdown in Italy and the recession in Turkey, , an important market for Europe.
Fourth and last, financial vulnerabilities remain, most prominently the sharp rise in global corporate bond markets, where the outstanding stock of debt at the end of 2018 (USD 13 trillion) was twice that in 2008 in real terms, and for which the quality has declined, leaving many highly-leveraged corporate obligors susceptible to an economic slowdown and a tightening of financing conditions.
So where does that leave us?
1. Trade and financial integration have gone a long way and amplify the effects of shocks and the impact of policies, positive or negative. This is why this forum is important: we need policy cooperation if not coordination.
2. We have seen the effects of monetary spillovers, which have supported central banks action to lift the world out of the worst financial crisis of post world war II. Now interest rates are set to be low for long and some argue policy makers run out of ammunition.
But I strongly disagree with this: integration also means that the effects of fiscal policies are stronger, especially when they are coordinated. So governments must act and coordinate fiscal policies, while enhancing structural reforms efforts to lift growth now; supervision and regulation efforts to address financial risks also need to step up. Thank you.