Remarks by Angel Gurría
Hoi An, Viet Nam, 21 October 2017
(as prepared for delivery)
Ministers and colleagues,
According to the latest OECD Interim Economic Outlook forecast, global GDP growth will increase from around 3 percent last year, to just over 3½ percent this year and next. The ongoing and projected pick-up in growth is welcome, as the global economy had been, until recently, stuck in a low growth trap. The current upswing has become more broad-based and is promising.
Growth performance has been strong in the first half of the year and more synchronised across the world. Regionally, Southeast Asian real GDP is growing at 5.1%, while in Latin America, economies are emerging from the two-year recession in 2015 and 2016, with modest GDP growth of between 1.5% and 2%. Globally, the short-term momentum is reflected in a rebound in industrial production, consumer spending, and investment. In emerging markets, growth is buoyed by a rebound in some commodity producers and public infrastructure investment in China.
Short-term momentum, however, does not guarantee medium-term sustainable growth. Projected growth rates remain below the historical average of 4 percent for the two decades prior to the crisis. We also need to keep a close eye on risks that have built up in financial markets, which may impact the region. In the advanced economies of the region, risks of snap-backs in asset prices should not be overlooked. APEC emerging market economies face challenges relating to their increased exposure to global financial cycles and to policy spillovers from developed economies, notably rising interest rates. Their main vulnerabilities remain related to past rapid credit growth, foreign currency exposures and non-performing loans.
The recovery of business investment and trade remains weaker than needed to boost productivity. The plateauing of productivity growth since the crisis threatens long-term growth prospects and will hamper the process of economic catching up within a region characterized by wide economic disparities, such as very huge gaps in productivity – a ratio of 1 to 5 - between APEC advanced and emerging member economies.
Promoting enhanced productivity, moving up the regional and global value-chains, shifting growth models from production factor accumulation to high value-added activities and innovation – in other words escaping the so-called “middle-income trap” - will require reforms to the business environment and policies to foster the emergence of productive firms, including through developing domestic capacities that can help Asia-Pacific countries benefit from international knowledge and technology flows.
Restoring trade intensity to its pre-crisis path, including through easing trade restrictions, would help close the shortfall of productivity growth, compared with pre-crisis trends.
We have seen firsthand in the Asia-Pacific region how such measures can have a real impact: Reducing barriers to trade at borders and cutting average tariffs by two third over the past two decades resulted in a seven-fold increase in the region’s total trade, with two-thirds of this trade occurring between member economies.
Boosting sustainable infrastructure will also be an important lever to promote productivity and growth. Public investment in infrastructure has been strong in much of the Asia-Pacific region, leading for instance, in Indonesia, to strong growth in infrastructure and housing construction – 7.0% in the first half of 2016. This was accompanied by economic reform packages, including to attract additional private investment and to improve the business environment. Over the longer term, the use of a wider range of infrastructure financing tools will play an important role in supporting the development and maintenance of sustainable infrastructure across the region. Implementing the Cebu Action Plan goals on infrastructure can be key in this regard.
However, to restore pre-crisis productivity growth levels and make sure that the ongoing recovery turns into sustained growth overtime, we must deliver growth that is inclusive. Over the last decade, inequalities have risen in most members of the Economic Community or stand at very high levels. Governments must enhance people’s well-being through labour market reform and by investing in education and skills. This is a matter, not only of ethics and social fairness, but also of economic efficiency!
With access to digital technologies growing from 4% to 40% of the world’s population in 20 years, the digital transformation of our economies also raises new challenges that will accentuate the need for structural evolutions. For example, enhancing access to digital technologies for all individuals and businesses at an affordable price requires sound framework policies, including sound competition and market openness. In my country, Mexico, recent telecommunications reforms, implemented with OECD’s support, created an environment for price reductions of up to 75% in mobile broadband packages, better quality services and the addition of 50 million mobile broadband subscriptions – more than the population of Colombia! In several Southeast Asian economies, like in the Philippines, broadband prices remain high, however, limiting access.
There is more that we can do. Your economies have experienced incredible progress over the past two decades, with a 74% rise in per capita income that lifted millions of people lifted out of poverty. Still, there are people, firms and regions yet to share the benefits from regional integration and economic development. The Asia-Pacific region is home to almost half of the world’s poor! There are also many who have been left behind by rapid social and economic changes, such as digitalization and the reallocation of resources between sunset and sunrise industries.
Structural reforms are essential. But, they are a means to an end. We must keep an eye on our end goal, which is inclusive and sustainable economic growth.
To achieve this goal in a global and interconnected economy, our policy approach must be well-informed, well-planned, and well-aligned. The OECD can help you in this regard – by sharing the policies that we see have worked, working with you to more effectively measure the impact of these reforms and by helping to connect the dots between parallel deliberations in forums like the G20.
Finally, in closing, I would like to commend Viet Nam, as APEC’s 2017 host economy, for putting inclusion high on the APEC agenda. Please count on the OECD’s continued support your efforts for a more sustainable financial future for the Asia-Pacific region.