Annual Meetings 2003
2003 Annual Meetings: News Releases, Speeches, Committee Papers, Documents and Background Information
Statements Given on the Occasion of the IMFC Meeting
September 21, 2003
Documents Related to the September 21, 2003 IMFC Meeting
Statement by Mr. Donald J. Johnston, Secretary-General
Organisation for Economic Co-operation & Development
International Monetary and Financial Committee
Dubai, United Arab Emirates, 21 September, 2003
This statement concerns item 2 (The Global Economy and Financial Markets) of the provisional agenda of the International Monetary and Financial Committee meeting.
OECD Assessment of the World Economy
The OECD is just starting its autumn assessment of economic prospects and its projections will be released on November 26. Our views at this time are summarised below.
The world economic outlook has clearly brightened since the last IMFC meeting. The US recovery is gathering momentum, as the massive injections of monetary and fiscal stimulus are coming through, with signs that investment is reviving. Japan has surprised on the upside and has recently been supporting rather than dragging down global activity. While performance in the euro area has been disappointing, with output contracting slightly during the first half of this year, forward-looking indicators suggest that activity may be gradually picking up.
Even where output is rising, considerable slack remains. Output gaps in the three main OECD regions as well as in the OECD area at large are estimated to be on the order of 2 per cent, and unemployment is relatively high. Hence, little upward pressure on underlying inflation is foreseeable in the near term. Central banks should therefore maintain their accommodating stance for some time and even consider further moves if aggregate demand were to weaken anew.
The risks surrounding the outlook are now more evenly balanced than last spring, despite some lingering geopolitical uncertainty. Oil prices have been somewhat higher than we assumed, although far lower than what many feared on the eve of the war in Iraq. Oil stocks remain low, however, and some uncertainties continue to hang over energy supply. Stock markets have experienced the most vigorous rally since the burst of the bubble in 2000—a sign that confidence is returning. House prices may be peaking this year in some countries, and with rising long-term interest rates, support to demand from this side should no longer be expected.
As the recovery firms, fiscal consolidation efforts will need to be stepped up. The complacency witnessed during some earlier upturns, which in some countries has curtailed the room for manoeuvre during the recent recession, should not be repeated. This is essential given the mounting fiscal pressures stemming from population ageing. It will also contribute to containing the rise in long-term interest rates. Restoring or enhancing fiscal sustainability should be pursued primarily through better control over public spending, especially in countries where taxes are being reduced.
For the recovery to broaden and to be sustained, and in order to bolster economies' resilience to future adverse shocks, continued and even accelerated structural reform is called for. In the United States, energy and health care sector reforms are high on the agenda. Euro area countries should strive to stay on the roadmap laid out in Lisbon in 2000. And in Japan, major challenges remain in financial sector and corporate restructuring.
Reinvigorating the Doha Development Agenda after Cancún
The Failure of the Fifth WTO Ministerial Conference is a matter for deep regret. The challenge now is to pick up the pieces in Geneva, and to do so with as little delay as possible. Progress was being made in Cancún on a wide range of issues, including agriculture, which for many lies at the heart of the Doha Development Agenda. That progress must not be lost. All parties must seek to play a constructive role—governments and NGOs—and avoid the temptation to revert to discredited North-South rhetoric.
If the momentum of multilateral reform is lost, then there are many who will pursue their goals through bilateral deals; we are already seeing evidence of this in several continents. This trend, if unchecked, may further marginalise the least-developed countries, which have little negotiating clout individually. Regional trade agreements can complement the multilateral trading system, but only if that system is itself strong, fostering steady, non-discriminatory liberalisation and strengthened rules.
In the face of persisting differences over agriculture and cotton and over the negotiation on "new" issues (investment, competition, trade facilitation and transparency in government procurement), WTO Members were unable to exercise their own enlightened self interest and reap the gains on offer from more liberal trade and strengthened rules. All countries have suffered as a result, but the real losers—because they had the most to gain—are the poor of the developing world. If OECD countries were to open up their agricultural markets, the annual welfare gains to developing countries are estimated at more than US$100 billion. This is well above the amount spent by OECD countries on development assistance. Improved trade facilitation could also yield some developing countries gains of up to 5% of their GDP.
The OECD as an organisation has an important role to play here : through its policy analysis that demonstrates the gains from trade and how alternative policy approaches can help open markets; through dialogue with partners in the developing world; and through the fostering of the process of peer review and good practice. OECD is at the forefront of analysis of the costs, to developed and developing countries alike, of distortions in agricultural policies, and of the potential gains associated with each of the "new" issues. We must strive to spread our message more widely and more effectively - to national governments, to engaged NGOs, and to the general public. We are actively cooperating with the IMF, World Bank and WTO to pursue our shared objectives.
With continued uncertainties about prospects for the world economy and with persisting inequalities in levels of income around the world, it is the special responsibility of OECD members to show leadership. But this is a shared undertaking, and developing countries too must play their full part in a trade deal that benefits everyone.