The Michael Shearin Group Morgan Stanley

OECD urges reforms to avoid era of sluggish growth

The world risks slipping into an era of slower growth and high unemployment unless governments push ahead with sweeping structural reforms, the Organisation for Economic Co-operation and Development warned ahead of this weekend’s talks between G20 finance ministers and central bankers in Sydney.

In a report published on Friday, the Paris-based group became the latest to warn that failure to reform is costing growth. Earlier this month the International Monetary Fund said aggressive reforms could add $2.25tn to the size of the global economy by 2018.

The OECD said the pace of reform had slowed over the past two years. This is leaving emerging economies vulnerable to the tightening of monetary policy as the financial crisis abates, exposing some European countries to persistently high unemployment, it cautioned.

This warning was echoed by the US, which pushed back against the concerns of emerging countries – expected to dominate the G20 talks – over the Federal Reserve’s decision to taper its quantitative easing programme.

“Emerging markets need to take steps of their own to get their fiscal house in order and put structural reforms in place,” said Jack Lew, US Treasury secretary.

“We are seeing a substantial differentiation in the marketplace between economies that have made those decisions and economies that haven’t,” he told a meeting of finance executives.

His comments follow criticisms from the likes of Raghuram Rajan, India’s central bank governor, who has accused the US and other industrialised countries of running selfish economic policies that cause turmoil in markets as the Fed tapers its quantitative easing programme.

Several developing countries, including South Africa, Turkey and Russia, have seen their currencies depreciate over recent months as investors redirect their money towards the US in anticipation of higher returns.

The simmering tensions between the US and emerging countries over the Fed’s monetary policy were high