Avoiding the low-growth trap!

Going for Growth – OECD

oecd-ilibrary.  

Feb 21, 2014

Economic Policy Reforms 2014  

Going for Growth: Avoiding the low-growth trap

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Remarks by Angel Gurría, OECD Secretary-General

Sydney, 21st February 2014  ,

„Ladies and Gentlemen,

This new issue of Going for Growth comes at a time of transition for the global economy:

  • we see the recovery strengthening in advanced economies, albeit at a different speed,
  • while growth in emerging countries is slowing, also at different pace. But our report recognizes and analyses one major concern shared by all :
  • the risk of falling into a low-growth trap. The widespread deceleration in productivity in recent years is one reason to worry about this. Of course, productivity can move up and down with economic activity and has done so many times in the past. However,
  • some key drivers of productivity growth – credit, investment and international trade – have been unusually weak since the crisis. 

Another reason to take seriously the risk of a low-growth trap is the

deep scars left in the economy by the crisis:

  • increased long-term and structural unemployment;
  • lower participation in labour markets,
  • withdrawal from discouraged job-seekers and skills obsolescence; all of those developments have already reduced trend growth, at least
  • in many advanced economies…

In that respect, the report I am releasing today is like a glass either half full or half empty.

The half full view: the pace of reforms remains on average well above the pace observed before the crisis, notably and unsurprisingly, in periphery countries of the euro area which have been most severely affected by the crisis. This is encouraging…
The half empty view: the pace of reforms appears to have slowed somewhat over the past two years while the process of reform remains too often piecemeal and incremental and unlikely to fully address the underlying challenges…”

Executive Summary

Policy reform progress and challenges

The crisis has dented potential growth of many advanced economies, while some emerging economies are running into bottlenecks…

Governments have continued to make progress on many fronts despite the challenge of reforming in a subdued growth environmen…

A number of  OECD countries are confronted

  • with slowing productivity growth in spite of
  • relatively high investment in knowledge-based capital and good quality tertiary education (Australia, Canada, New Zealand, United Kingdom and Switzerland).

In the case of emerging-market countries (Brazil, China, Chile, Indonesia, India, Mexico, Russia, Turkey and South Africa), the need to

  • improve access to quality-education, to
  • address physical and legal infrastructure bottlenecks and, in most cases, to
  • bring more workers into formal-sector employment constitute the main policy priorities. Persistently high unemployment is a concern that cuts across much of  

Europe, but particularly so in southern and central European countries where

  • long-term unemployment remains high, even where average unemployment has receded since the crisis. The contributing factors, which vary across countries, include various barriers to job creation and workers’ mobility, as well as insufficient support for job-search and skills development.

In southern euro area countries, which have been hardest hit by the crisis, more vigorous

  • product market reforms would help boost the impact of the substantial labour market reforms that have been implemented in recent years.

In some OECD countries which face particularly

  • rapid population ageing (Germany, Japan and Korea),
  • bringing more women into the labour market and ensuring that they are fully integrated remain key challenges, along with the need to boost productivity in services.

In countries where income inequality is particularly high, actions taken recently on policy priorities should for the most part help to

  • narrow income distribution, although this may take time. On the other hand, actions taken to boost growth

in countries facing the largest current account imbalances are unlikely overall to contribute much to

  • narrowing these imbalances.
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