18 February 2016
The OECD is right to do so: Seven years into the slowest economic recovery to date, the world economy cannot afford a renewed slowdown. Growth will not be higher in 2016 than in 2015 and the weak growth acceleration by 0.3 percent forecasted for 2017 may also prove to be unattainable.
A collective and comprehensive policy response by OECD and G20 governments is essential to avoid economies slipping further into crisis. This requires lifting aggregate demand though increased public investment and higher wage levels, so as to generate employment and long-term investment. Current policies are not working.
“The OECD is clearly recognising that increasing public investment is good for short term growth, will support future growth and will improve the sustainability of public finances. The interim outlook’s implicit message is that investment now will reduce (not increase!) public debt ratios,” said Evans at the release.
The OECD repeats its long-standing message in favour of structural reforms. However, labour market reforms have become synonymous with weakening collective bargaining and wage formation institutions, thereby lowering wages and risking deflation.
“With inflation close to zero or, in several economies almost zero, it does not take much of a negative shock to tip low inflation over into outright deflation,” said Sharan Burrow, General Secretary of the International Trade Union Confederation. “We need a structural policy agenda to raise minimum wages and strengthen collective bargaining. G20 governments must start a race to the top in living standards not a race to the bottom.”
On the occasion of the G20 Finance Ministers and Central Bank Governors’ Meeting on 26-27 February in Shanghai, the International Trade Union Confederation (ITUC) and TUAC, coordinating the L20 on the international level, call on G20 countries to react to the OECD’s forecasts and stimulate growth and employment as to deliver on the G20 commitment to lift growth by 2.1 % by 2018. In doing so, they should refrain from competitive devaluations, adopt a new strategy on fiscal policy, lift public investment and wages to boost demand, strenghten short-term growth, and improve the sustainability of public finances.
“Governments should support stronger labour market institutions in securing higher wage growth as a way to avoid zero inflation from becoming entrenched through very weak wage agreements, to re-anchor inflation expectations and, as agreed by the G20 under the Turkish presidency, as a tool to address rising inequalities and the falling labour income share,” said Sharan Burrow, ITUC General Secretary.