For some time now, the dominant story in the world economy seems to have been this: Developed economies sputtering along; emerging economies powering ahead. Now, the pendulum looks to be swinging again.
According to the OECD’s latest economic projections, released this morning in Paris, growth in a number of developed economies seems to be gaining ground, and looks to have been ahead of forecasts in the first quarter of this year. By contrast, the large emerging economies appear to be losing momentum.
That mix of news is troubling for the global economy: Over the past few years, the emerging economies have been its main engine of growth and now account for around half of global economic activity. As they start to slow, global growth could turn increasingly sluggish.
Among the OECD countries, the United States is continuing to recover while growth in Japan has rebounded strongly. In the Eurozone, six quarters – that’s a year-and-a-half – of recession has come to an end, although economies in some countries continue to contract. The United Kingdom, too, looks to be performing strongly.
Of course, this isn’t to say that the developed economies are out of the woods yet: The recovery remains tentative and risks still lurk; for example Eurozone banks are sitting on a lot of bad debt and remain short of capital. And a number of factors, including the continued hangover of the financial crisis and unfavourable long-term demographic trends, means the overall performance of developed economies will be below par for years to come. “Reforms to boost growth, rebalance the global economy and reduce structural impediments to job creation remain vital,” says the OECD.
What’s happening in the emerging economies? One issue is the threat of a return to normality in developed economies. Since the crisis struck, many OECD economies have held down interest rates at extremely low levels and have pumped money into their economies through quantitative easing. But amid strengthening signs of recovery, the U.S. the Federal Reserve, or central bank, has been signalling that it wants to begin returning to business as usual this autumn. A rise in long-term rates in the U.S., coupled with signs of recovery, has led many investors to pull out of emerging economies, which in turn is putting pressure on their currencies and raising borrowing costs.
More broadly, many of the emerging economies are now facing long-term issues that won’t stall growth but do threaten to slow it. Demographics – or ageing populations – are part of the picture as is slow momentum on reforms that could raise economic productivity. That’s not to say that we’re seeing an end to “shifting wealth” – the rebalancing of the global economy towards emerging and developing economies. But, as The Economist put it recently, “its most tumultuous phase seems to have more or less reached its end.”
OECD work on economies
Recovering from the crisis is about returning to economic growth that can sustainably deliver better lives in all senses of the word – jobs for today and the education and skills for the jobs of tomorrow, healthy environment, and equal opportunities.
Economic growth is the foundation stone, but the crisis taught us that it has to be the right kind of growth. In many countries, people are rising up – indignant about inequalities and what they see as a lack of transparency and accountability from their governments and institutions. They are calling for new approaches that focus on growth, fairness and inclusion and address corruption, the rising cost of living and social spending cuts.
Expectations are high for international organizations such as the OECD to help governments in their efforts to find sustainable solutions. It’s a daunting task, but one we can attain if governments and citizens work together. OECD Week 2012 in Paris is a key moment for achieving this and comes on the heels of the success of the OECD’s 50th Anniversary last year.
What happens during OECD Week?
OECD Week combines the annual OECD Ministerial Meeting and Forum. The Forum, a public event, brings together ministers, business, labour, civil society and academia to share policies and ideas. It feeds into the Ministerial Meeting, where government leaders and ministers discuss issues on the global agenda. Turkey’s Deputy Prime Minister, Ali Babacan, will chair this year’s Ministerial, supported by vice-chairs Chile and Poland.
Highlights of the week include the semi-annual OECD Economic Outlook, as well as three major new reports – the Skills Strategy to ensure that today’s children and young adults are well equipped for tomorrow, the final report of the Gender Initiative and the Development Strategy.
The Forum – 22-23 May
Politicians, business leaders, academics and civil society will discuss and debate ways to shift from indignation and inequality to inclusion and integrity. With record numbers of young people looking for jobs, the middle class squeezed out of the system, financial regulation failures, and faith in governments and other institutions waning, how best to restore trust and integrity in the system and find innovative paths for more sustainable, equitable and greener growth?
Which policies are delivering better lives? The OECD’s Better Life Index, launched in 2011, offers people a chance to say what matters most to them – education, jobs, a nice home, clean air, money – and see how their country measures up. An updated version of the Index, to be released at Forum 2012, includes new dimensions for gender and inequality as well as two new countries, Brazil and Russia.
The Ministerial – 23-24 May
Ministers will focus on policies for a sustainable – jobs-rich, green and equitable – economic recovery. In this context, they will discuss ways to encourage people to learn and maintain skills – the global currency of the 21st century – and encourage gender equality so women can fulfil their potential. As the economy of one country depends on the economy of all, ministers will also discuss the benefits of a more open trading system and look to strengthen partnerships with developing countries and their relationship with the Middle East and North African region.