The OECD on Friday (21/02/2014) warned declining global productivity will usher in a new and extended era of low growth unless there are major structural reforms.
Its new “Going for Growth” report identifies infrastructure shortages and slowing trade activity as key problems – issues that will be in focus at the G20 meeting of finance ministers and central bank governors in Sydney this weekend.
“The widespread deceleration in productivity since the (global financial) crisis could presage the beginning of a new low-growth era,” the Organisation for Economic Cooperation and Development said.
“The global economy’s momentum remains sluggish, heightening concerns that there has been a structural downshift in growth rates compared with pre-crisis levels.
“These concerns, already prevalent among advanced OECD countries for some time, now encompass emerging-market economies and are fuelled also by high unemployment and falling labour force participation in many countries.”
OECD chief Angel Gurria said the report came at a time of transition for the global economy, when “we see the recovery strengthening in advanced economies, albeit at different speeds, while growth in emerging economies is slowing”.
“Normally it’s the other way around,” Gurria told reporters in Sydney, noting that key drivers of productivity growth such as credit, investment and trade, had been “very very sluggish, in some cases unusually weak since the crisis”.
Growth was muted, unemployment and economic inequality was rising and the OECD chief said there had been a “big drop in the confidence, in the trust in all the institutions we’ve built up over 50 to 100 years”.
With traditional stimulatory instruments such as fiscal and monetary policy nearing or at their limit, Gurria said “ambitious” structural reform agendas needed to be pursued “with determination by all G20 countries.”
“Stronger demand is indeed fundamental but by no means sufficient to avoid the low-growth trap,” he said.
Gurria said the OECD report could be seen as a glass half-full or half-empty assessment.
On the positive side, he said the speed of reform remained “on average well above the pace observed before the crisis.”
Detracting from this, however, momentum had slowed “visibly” in the past two years and reforms were “fragmented, piecemeal, incremental and unlikely to fully address the underlying challenges.”
The report calls for investment in skills to boost labour force participation, and a fresh approach to encourage private investment in infrastructure to help boost growth.
“One worrying development is the marked slowdown in global trade activity relative to world production,” the report said.
“And trade-related concerns are magnified by subdued investment in new plant, machinery and equipment as well as in less tangible assets such as research and development or new business processes and workforce training, which are needed to make the most of new technologies.”
The OECD said that business investment rates in most advanced economies were below what would be needed to sustain higher-trend growth rates.
“In several emerging-market economies – notably Brazil, India and Indonesia – infrastructure investment is not sufficient to support high rates of industrialisation and urbanisation, hampering potential growth.”
The G20 has sessions on the global economy and growth strategies, both of which have been prioritised by summit chair Australia with Treasurer Joe Hockey.
OECD data released Thursday showed growth in advanced economies slowed down slightly in 2013 to 1.3 percent from 1.5 percent in 2012.
The highest 12-month rate was turned in by Britain with 2.8 percent, followed by Japan and the United States with 2.7 percent. – AFP