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 highlighted by critical comments made by senior Turkish and Russian politicians at the Institute of International Finance conference where Mr Lew was speaking on Friday.
Ali Babacan, Turkey’s deputy prime minister, said it was developed economies’ failure to introduce structural and financial reforms before the recent crisis that had necessitated the easing of monetary policy that was now buffeting emerging markets.
“It is now time for greater policy co-ordination,” said Mr Babacan, who is due to hold talks with Mr Lew.
Ksenia Yudaeva, Bank of Russia first deputy governor, told the conference that some changes may be needed so that central banks “think more globally”.
Russia is the latest emerging country to become caught up in financial market jitters with the rouble falling 8 per cent against the dollar since the start of the year. Turkey has been battered by the turbulence, due mainly to its large current account deficit.
G20 finance ministers and central bankers are expected to try and agree a communiqué in the talks, which reflects on the need for increased transparency on global monetary policy while urging the need for structural reform.
The OECD’s “Going for Growth” report found that the intensity of structural reform measures remained highest in Greece, Italy, Portugal and Spain, where action was being taken to reform the labour market.