The expansion of the global economy over the past year is set to continue and strengthen. Gross domestic product (GDP) in G7 economies grew by an estimated 2% in 2017 – the fastest pace since 2010 – and growth is becoming more robust and broad-based. At an average of 6%, unemployment has finally fallen below its pre-crisis level in G7 countries.
As the recovery gathers pace, G7 members must focus on making sure that growth is self-sustaining and driven by strong productivity gains, that it benefits all and that it is more inclusive while tackling several far-reaching megatrends, from digitalisation to climate change. Confronted with these challenges, Canada has put forward a progressive and ambitious agenda for the Charlevoix Summit.
Much needs to be done. Productive growth continues to lag behind past norms, thus hampering further wage growth. Inequality levels in G7 economies remain stubbornly high. The richest 20% earn almost six times more than the poorest 20%, and the top 10% of the wealth distribution hold a staggering 54% of total wealth, compared with the 2.8% held by the bottom 40%. Income inequality has also both a spatial and a gender dimension: household income can be up to 50% higher in the richest region of a G7 country compared to the poorest region, and the gender income gap has decreased but remains at a G7 average of 43%. Moreover, inequalities are multidimensional: they limit social mobility and impact the different facets of well-being, such as access to health, education and housing. This results in falling trust in public institutions and erodes social cohesion.
And all this takes place in the context of deep transformation. To be sure, globalisation, digitalisation, demographics and climate change will keep transforming G7 economies at an increasingly fast pace.
Jobs at risk
Rapid technological change has led to an increase in employment rates in most G7 members, but it has affected the distribution of jobs, wages and income. This transformation has had positive impacts on productivity for many firms, in particular frontier firms. But it has yet to percolate to the rest of the economy in order to generate broader-based productivity gains. In the labour market, the share of high- and low-skilled jobs has increased at the expense of middle skilled jobs. OECD research suggests that in the next 20 years, 14% of jobs are at high risk of automation and a further 30% may experience significant changes.
Meanwhile, despite countries’ efforts to meet their nationally determined contributions to reducing their greenhouse gas emissions under the Paris Agreement, levels are still insufficient to keep global warming well below 2°C relative to pre-industrial levels.
Against this background, urgent and decisive action is needed. G7 members, both individually and collectively, have an opportunity to lead a comprehensive policy response to these pressing and looming challenges.
First, higher global growth provides an opportunity to make renewed progress on domestic structural reforms, with higher chances of bearing fruit more rapidly and generating growth that works for all. G7 members have undertaken encouraging reforms: Japan has increased access to childcare and France has reformed employment protection legislation and collective wage bargaining. These reforms should increase participation, access and mobility in the labour markets, thus enhancing productivity and inclusiveness. However, G7 members must do more and leverage the positive context to obtain quick wins that would reduce the risk of reform fatigue.
G7 economies must strive to harness the sources of growth coming from the digital economy. By 2030, eight billion people and 25 billion active smart devices will be connected. Government action is necessary to realise the potential of transformative technologies, such as artificial intelligence or the Internet of Things, for much-needed productivity growth and improved living standards. G7 policymakers must anticipate these transformations and the related disruption by prioritising skills development, preparing tomorrow’s infrastructure and adapting social security and labour market activation schemes to the future of work in order to make sure that no one is left behind. By focusing on preparing for the jobs of the future, Canada’s G7 presidency is striking the right chords.
But, more generally, the Charlevoix Summit offers a unique opportunity for collective action at the multilateral level.
A united front
G7 members must avoid the temptation of protectionism and defuse the threat of a trade war, which is perhaps the most significant downside risk to the global economic outlook. The Global Forum on Steel Excess Capacity, facilitated by the OECD, can be part of the solution. Collective action will also be needed to level the playing field at the multinational level, including by making progress in the international tax agenda.
Last but not least, we need policies to avoid a collision course with nature and ensure the sustainability of our economies. Done properly, this will not only be good for the only planet we have, but also beneficial for the economy. Investing in Climate, Investing in Growth, published by the OECD last year, shows that balanced packages of fiscal and structural reforms geared towards climate change mitigation can increase GDP levels by up to 2.8% in 2050 compared to the business-as-usual scenario.
Climate change requires collective action that recognises the interconnected nature of the environmental challenge. The G7, under Canada’s presidency, is showing strong leadership with a focus on addressing the question of plastics pollution. Every year, up to 13 million tonnes of plastic are dumped in the oceans, hampering their capacity to work as one of the Earth’s lungs. Developing the circular economy by boosting the market for plastic recycling not only makes economic sense but also helps us deliver on our climate and environmental agenda.
The G7 Charlevoix Summit is an opportunity for G7 leaders, under the stewardship of the Canadian presidency, to renew their commitment to inclusive and sustainable growth while showing their determination to use multilateralism as the prime mechanism for resolving differences and building better societies for tomorrow. The OECD will continue putting its convening power, expertise and policy tools to support the G7 in this endeavour.