Opening remarks by Angel Gurría
OECD, Paris - 30 May 2018
(As prepared for delivery)
Ministers, Colleagues, Ladies and Gentlemen,
Thanks for joining us for the presentation of our latest Economic Outlook.
I am pleased to report that our central scenario for the world economy is more favourable now than it has been for many years. Global GDP growth in 2018-19 will be close to 4%. This is similar to pre-crisis averages, but in per capita terms actually about half a percentage point better. Job gains are also strong – unemployment across the OECD is approaching its lowest level since 1980 – and the growth of trade and business investment has rebounded, while inflation is moderate (at most) in the major economies.
This is welcome news. There are, however, a number of challenges even within this positive scenario. For many households, real disposable income is still lower than before the crisis, and stubbornly weak wage growth is fuelling social discontent. Only limited improvements are seen in these areas.
The rise in trade tensions has already dented business confidence in some places and would have more severe consequences if announced measures and counter-measures are actually taken.
The recent surge in oil prices – the price of a barrel of Brent is up by 50% in the past year – has in part reflected uncertainty about supply owing to geopolitical tensions. A continuation of that rise would put upward pressure on inflation.
A related risk is that, if inflation surprises to the upside, monetary policy will be tightened faster than people are expecting. This could be particularly disruptive in economies where house prices are high and/or households heavily indebted. And the evidence in this Outlook of the growing interconnection of our economies is a reminder that policy actions in one major economy are more than ever likely to be felt strongly in the rest of the world. That goes to the heart of the Ministerial Council Meeting (MCM) discussions today and tomorrow.
All these risks bring policy implications.
For example, with most OECD economies now having an expansionary fiscal stance – in some cases strongly expansionary – we caution against overly procyclical policies. This would worsen upward pressure on inflation and interest rates and could yield large exchange rate movements, all of which could trigger financial instability.
We also think that central banks should guard against overreacting as inflation nears or reaches target levels. In current conditions, unexpectedly rapid tightening of monetary policy could trigger sharp falls in asset prices and a surge in bad debts, which look like a greater danger to the world economy than a minor overshooting of inflation targets in a few countries.
The current outlook is a reminder that, across much of the world, achieving satisfactory growth seems to require policies that are highly supportive of demand. But these policies encourage a ratcheting-up of debt levels and over-inflated asset prices, which can sow the seeds of future crises. In many of our economies we need to find a better, more sustainable way of achieving satisfactory economic growth.
You will not be surprised to learn that, for us, much of the answer has to come from better structural policies. Unfortunately, overall this is not what we are seeing. When we measure structural reform actions against OECD recommendations, we actually find a negative trend in recent years.
We have to step up reforms. In particular, in a context of fiscal easing in many countries, the Outlook underlines the need for tax and spending measures to be conducive to strong, inclusive and sustainable growth. It urges countries to boost investment in education and skills and recommends improvements to digital and physical infrastructure.
The other main message in the Economic Outlook is the one with the greatest resonance for the MCM. The special chapter looks at how economies have become more exposed to developments abroad as a result of growing international economic integration.
It highlights that the impact of external shocks, especially from emerging economies, has become stronger. For example, a few decades ago global factors accounted for just over half of equity price movements in advanced economies, but now they are found to determine nearly 90% of such movements.
The chapter notes that increased economic integration raises challenges for policy. On the domestic policy side, countries should try to strengthen their resilience to external shocks. Along with structural reforms to that end, improved social safety nets are needed to ease adjustment to global changes.
Another implication is that the need for international policy co-ordination is greater than ever. Establishing effective global standards and rules, along with continued multilateral dialogue, is the best means of bringing that about. And this, of course, resonates with the theme chosen by President Macron for this year’s MCM: “la refondation du multilatéralisme”.
Over the next two days Ministers will discuss how to strengthen the foundations of multilateralism to achieve more inclusive and sustainable outcomes. I hope that the messages of this Economic Outlook will be in the forefront of their minds: the world economy is at last doing better, but not everyone is benefitting from that improvement, and there are some important risks to the baseline scenario, including the risk of the multilateral system being weakened.
Ladies and Gentlemen,
I now hand over to Alvaro Pereira, who will take you through the main findings of the report in more detail. Thank you.