Catherine L. Mann

OECD Chief Economist

Exiting from the low-growth trap:Investment

www.oecd.org/economy/economicoutlook.htmECOSCOPE blog: oecdecoscope.wordpress.com/

5th OECD Parliamentary DaysParis, 9 February 2017

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A Low-Growth Trap persists … disappointing short-run and long-run performance

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Note: Horizontal lines show the average annual growth rate of GDP in the period 1987-2007. Data for Russia are for the average annual growth rate in the period 1994-2007.1. With growth in Ireland in 2015 computed using gross value added at constant prices excluding foreign-owned multinational enterprise dominated sectors.2. Fiscal years.Source: OECD November 2016 Economic Outlook database.

Note: Labour productivity growth is output per hour worked at annualised rate. Source: OECD June 2016 Economic Outlook database; OECD National Accounts database; OECD Productivity database; OECD calculations.

Year-on-year percentage changes Tt

Tt2015

2016

2017

2018

Productivity Growth Real GDP Growth including projections

Low-Growth Trap is characterized by … widening productivity gap, rising inequality

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Inequality in incomeReal household disposable income, total population

Productivity diffusion gap

Source: Andrews, D., C. Criscuolo and P. Gal (2016), "The Best versus the Rest: The Global Productivity Slowdown, Divergence across Firms and the Role of Public Policy", OECD Productivity Working Papers, No. 5; Orbis data of Bureau van Dijk.

Note: OECD is the unweighted average of the countries for which data are available. Source: OECD estimations based on Kappeler et al. (2016), “Decoupling of Productivity and Median Wage Growth: Macro-Level Evidence”, OECD Economics Department Working Papers, forthcoming; OECD National Accounts database; OECD Earnings database; OECD Income Distribution database; OECD calculations.

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Product market

liberalisa-tion

Two-stan-dard-devia-tion reduc-

tion in global uncertainty

1% increase in foreign demand

1% increase in domestic

demand

0.0

0.2

0.4

0.6

0.8

1.0

1.2

Real investment remains very sluggish… synchronize global demand to revive investment

OECD real investment Estimated impact of shocks on investment

Percentage change after 5 years

Note: PMR for a 16% reduction in OECD index of regulation in energy, transport and communications (ETCR) over 5 years, equivalent to the average pace of reduction among 15 OECD countries during the period 1993-2013. Global uncertainty two-standard-deviation reduction in index corresponds to a 26% reduction.Source: OECD calculations.

Note: Current recovery shows since 2008Q1 including the forecasts in the dotted line. Previous 3 recoveries pre-recession peak in 1973Q4, 1980Q1 and 1990Q3.Source: OECD November 2016 Economic Outlook database.

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World trade and GDP growth

Note: World GDP volumes measured at PPP exchange rates. World trade volumes measured at market exchange rates in US dollars.For 2014, world trade average growth for four years to remove the rebound following the crisis.Source: OECD November 2016 Economic Outlook database; and WTO-OECD-UNCTAD 2016 G20 Trade Policy Monitoring Report.

Reviving investment is key for trade … GVCs, and productivity

Global Value Chain indicator

Note: Structural global value chain indicator shown which adjusts for the economic cycle and changes in commodity prices. For further detail see OECD Economic Policy Paper “Cardiac Arrest or Dizzy Spell: Why is World Trade So Weak and What Can Policy Do About It?”. Source: OECD June 2016 Economic Outlook database; OECD STAN Bilateral Trade database; and OECD calculations.

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Use fiscal space conveyed by monetary policy: …Both Macro-collective and Micro-Structural

Long-term GDP gainFrom a 0.5% of GDP increase in public investment

First-year growth gain

Note: Structural reforms shows the impact of a 10% reduction of product market regulations.Source: Mourougane A. et al. (2016), “Can an increase in public investment sustainability lift economic growth?” OECD Economics Department Working Papers, No. 1351, OECD Publishing, Paris; and OECD calculations.

THANK YOU!

The Future of Productivity

www.oecd.org/economy/economicoutlook.htmwww.oecd.org/global-forum-productivitywww.oecd.org/eco/growth/goingforgrowth.htmECOSCOPE blog: oecdecoscope.wordpress.com/

Prepared with assistance from William Witheridge.