OECD: Global policy reforms needed to shore up stable economies

1 Jun 18

Global reforms are needed to ensure the current strength of the worldwide economy is sustainable as risks are looming, the OECD has warned.

The intergovernmental economic organisation warned that although the global economy is now strong it is not yet self-sustaining and countries must focus on policies that boost skills and productivity, it said in its latest Economic Outlook, launched in Paris on Wednesday.  

The outlook highlighted that the increases in oil prices, trade tensions and rising interest rates could be a threat to long-term growth. 

OECD secretary-general Angel Gurria said: “The current recovery is still being supported by very accommodative monetary policy, and increasingly by fiscal easing.”

This suggested that growth is not yet strong and self-sustaining, he added.

“Policymakers need to put greater focus on structural policies to boost skills and to improve productivity to achieve strong, sustainable and inclusive growth,” he said

He added that the outlook calls for the use of taxes and spending to go towards achieving inclusive growth and high living standards.

The outlook highlighted that the current strong economy, which it projects will grow by nearly 4% next year, has been supported by fiscal easing as well as investment and trade.

It set a 3.8% forecast for this year and 3.9% for 2019, which is close to the pre-crisis average, the OECD said.

China and India have made up 50% of the world growth in recent years, the organisation added.

Alvaro Santos Pereira, acting chief economist at the OECD, told reporters that the foundations for healthy growth is already laid.

But he said that “we have a lot less reforms than we used to have and something has to be done about this.”

Countries should do more to invest in education and skills to ensure more robust and inclusive growth, he said.

He added that governments “are not doing enough about education” and “more needs to be done to make skills a priority for the country”.

“It’s not enough to talk the talk, you need to walk the walk,” he added.

The outlook also added that there should be further investment in digital infrastructure.

Additionally, the recent trade tension has caused uncertainty in the world and puts the global economic growth at risk, the OECD said.

This includes the rise in trade protectionism - including the US tariffs on steel and aluminium, which could lead to a trade war as allies pledge to hit back.  

It is important that countries continue the dialogue and to deal with the tension, which Pereira said can cause more harm than it would have in the past.

Countries should strengthen their resilience to external shocks, Gurria said.

Pereira said: “The world economy has fundamentally changed in the last 20 years.

“Global shocks will have a much bigger impact now than they would have had 20 years ago.

“It is very important to continue the dialogue and to try to dampen the tension,” he added.

Unemployment in the OECD area is expected to drop to the lowest levels since 1980, the outlook said.

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