Session by Catherine Mann, Chief Economist, G20 Finance Deputy and Special Counsellor to the Secretary-General, OECD The global economy remains in a low-growth trap with world GDP stuck in 2016 at around 3%, well-below the long-run average for the fifth consecutive year. Disappointing growth outcomes have led to weak consumption and investment, sustaining a vicious cycle of poor productivity improvements and further growth disappointments. Weak investment accounts for a large share of this poor productivity performance with capital spending in the OECD barely above the pre-crisis peak and well below the trajectory of past recoveries. Most strikingly, investment has not responded to the exceptionally low interest rates brought about by monetary policy. Increases in investment are needed to push economies onto a higher growth path and this calls for decisive policy actions. During this presentation, OECD’s Chief Economist will share insights into how fiscal initiatives and structural reforms can lead to higher growth without compromising debt sustainability.

1. Catherine L. Mann
OECD Chief Economist
Exiting from the low-growth trap:
Investment
www.oecd.org/economy/economicoutlook.htm
ECOSCOPE blog: oecdecoscope.wordpress.com/
5th OECD Parliamentary Days
Paris, 9 February 2017

2. 2
A Low-Growth Trap persists
… disappointing short-run and long-run performance
To hide text
To hide text
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
Tt
2015
2016
2017
2018
Productivity GrowthReal GDP Growth including projections

3. Low-Growth Trap is characterized by
… widening productivity gap, rising inequality
3
Inequality in income
Real 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.

4. 0.0
0.2
0.4
0.6
0.8
1.0
1.2
Product
market
liberalisation
Two-
standard-
deviation
reduction in
global
uncertainty
1% increase
in foreign
demand
1% increase
in domestic
demand
Real investment remains very sluggish
… synchronize global demand to revive investment
4
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.

5. 5
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.

6. Use fiscal space conveyed by monetary policy:
…Both Macro-collective and Micro-Structural
6
Long-term GDP gain
From 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.

7. THANK YOU!
The Future of
Productivity
www.oecd.org/economy/economicoutlook.htm
www.oecd.org/global-forum-productivity
www.oecd.org/eco/growth/goingforgrowth.htm
ECOSCOPE blog: oecdecoscope.wordpress.com/
Prepared with assistance from William Witheridge.