I would like to extend a particular welcome to all Leaders, Ministers and senior representatives from over 40 countries, including from our Key Partners, who have gathered in Paris for this Meeting.
I would like to share with you our main messages before handing over to Pier Carlo Padoan, Deputy Secretary-General and Chief Economist of the OECD, who will elaborate on our projections, risks to the outlook and the key challenges facing policy makers.
The global economy has yet to recover in earnest
Six months ago we released our previous Economic Outlook and pointed to a weak recovery for the global economy. Today, we are still confronted with an outlook that remains weak, and a recovery that continues to be hesitant and uneven across countries and regions.
There are some encouraging signs coming from a pick-up in activity in the United States and Japan. The so-called tail risks related to the euro area crisis have receded, but the situation remains particularly fragile in Europe. The potential for negative feedback loops involving weak banks, strained public finances and ailing real economies has not been eliminated. Financial sector repair has been slow in the euro area, and a fully-fledged banking union has yet to be put in place.
This failure of the global economy to recover more strongly has posed a heavy burden on people. Unemployment remains far too high. In some countries, it is already at record levels, and it is still rising in the euro area. The jobless, particularly youth and the less skilled, risk losing contact with the labour market and dropping out of the labour force altogether, even when activity eventually picks up. Around the world almost 74 million young people are unemployed. We cannot afford a lost generation!
Progress is being made, paving the way for the upswing
Despite the mediocre performance of the world economy and the persisting risks, we have some positive messages to share with you today. Progress has been achieved in many areas, and the courageous steps to deal with the legacies of the crisis are starting to pay off. This contributes to the pick-up in growth that we project in all major OECD economies over the next couple of years.
Japan has taken decisive steps to tackle chronic deflation. The authorities in the United States have taken action to avoid – at least partially – the fiscal cliff. And a number of countries, notably in the euro area periphery, are making important progress with both structural reform and fiscal consolidation. We are already seeing improvements in competitiveness and much needed rebalancing in the economies of Southern Europe that have been hardest hit by the crisis. This is very good news.
But my key message today is about the outlook for the public finances. It is true that most OECD countries still have heavy public debt burdens. And it is true that we have gone through several years of painful tightening. But it is also true that, precisely thanks to these efforts, many countries need only limited additional adjustment to put their public finances back on track. They are very close to stabilising their debt-to-GDP ratios and to putting them on a sustainable downward path over the next 15 years or so.
Given the huge consolidation needs these countries were faced with only a few years ago, they have made remarkable progress. The sacrifice has not been in vain. Stay the course, you are almost there!
More can still be done to prepare for future challenges and opportunities
My second message is that the road ahead will not be without challenges. Indeed, to achieve durable consolidation countries will have to maintain their improved fiscal positions over the long term. Countries will also need to find ways to deal with population ageing and the burden it will place on their budgets in the years ahead.
Let’s be clear: durable consolidation is not about one-off gains, it is about making a qualitative shift in the public finances and sustaining it over time! For that, policymakers will need to work hard to put their economies back on a strong growth path. And here again there remains huge potential for further reforms to improve how economies work.
We have done the number crunching: we have simulated the effects of structural reforms on potential output across the OECD area through 2060. Our analysis shows that moving to best practice across a number of policy areas – product and labour market regulations, and education, just to name a few – would raise per capita incomes by some 20% in the median OECD country. This is huge! And those gains would be even higher for those countries that are now furthest from best practice. So our call continues to be: “go structural”. It is good for growth and prosperity, and it is good for the public finances.
But the search for higher well-being will also require to put jobs and people first and to make growth more inclusive. This in turn will help restore trust in governments – trust that has been seriously eroded in recent years. In turn, restored trust will help mobilise public support for even more ambitious and innovative reforms. These are the major challenges that we will be discussing at this 2013 OECD forum and Ministerial Council Meetings, for which we chose as main themes Jobs, Equality and Trust.
I will now give the floor to our Deputy Secretary-General and Chief Economist, Pier Carlo Padoan, who will guide you through this Outlook and the policy challenges in more detail. Thank you.