Group of 20 finance ministers need to find ways to boost productivity growth or risk seeing the world economy to slip into an extended period of low growth, the Organization for Economic Cooperation and Development said.
The widespread drop in productivity may “presage the beginning of a new low-growth era,” OECD Chief Economist Pier Carlo Padoan said in a report. “The global economy’s momentum remains sluggish” and these concerns “now encompass emerging-market economies” as well as developed ones, he said.
The remarks underline the challenges facing the G-20 finance chiefs and central bankers as they gather in Sydney today and tomorrow to discuss turmoil in emerging markets and lackluster growth in the euro area in the wake of that region’s debt crisis.
Slowing growth in productivity and world trade are the result of lack of investment, according to the report.
“Current business investment rates in most advanced economies are below what would be needed to sustain higher trend growth rates,” Padoan said. “In several emerging market economies -- notably Brazil, India and Indonesia -- infrastructure investment is not sufficient to support high rates of industrialization and urbanization,” he added.
While some countries plagued with trade deficits before the financial crisis have begun overhauling their economies, surplus countries such as Germany, Japan and China need to increase their effort to free service sectors to bolster demand, the report said.
“Reform fatigue may be exacerbated by concomitant fiscal consolidation,” Padoan said. “It is important in this context to ensure that reform efforts are more even across countries so that the process of re-balancing can be facilitated by stronger global demand.”
Emerging countries should understand that the market turmoil caused by the U.S. Federal Reserve’s plan to ease monetary stimulus means they also have problems to address, the OECD said. The MSCI Emerging Markets Index is down about 5 percent this year and developing-nation currencies are experiencing their worst annual start since 2010.
“The vulnerability of many emerging-market economies to an eventual tightening of monetary policy or the cooling down of the commodity boom serves as a reminder that the case for structural reforms is also strong there,” Padoan said.