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February 15, 2013 11:58 am
The Organisation for Economic Co-operation and Development has called on the world’s largest economies to step up labour market and welfare reforms ahead of the meeting of top finance officials of the Group of 20 leading industrialised nations in Moscow this weekend.
G20 finance ministers and central bank governors gather in the Russian capital on Friday after the release of a worse than expected set of GDP figures for the eurozone fuelled concerns over the strength of global economic recovery.
The OECD on Friday morning urged members of the G20, including those in the single-currency bloc, to press ahead with reform of the structure of their economies, especially jobs markets, in spite of the lack of growth.
“Better structural policies will help achieve fiscal sustainability and provide greater leeway for monetary policy. Importantly, structural reforms can bolster confidence,” the OECD said in a report. It added that addressing problems in the jobs market was chief among the challenges facing many of the largest economies.
“The absence of a vigorous and sustained recovery in economic activity has pushed a rising share of workers to the margin of the labour market in many OECD countries, hurting youth and the low-skilled most,” the report said.
Weaker eurozone members were praised for their “particularly intense” reforms of politically sensitive areas such as labour market regulation and social welfare systems. The OECD criticised members of the bloc with current account surpluses, such as Germany, for the “moderate” pace of their own efforts.
“To achieve stronger and more balanced growth, both in the euro area and globally, action on structural policy priorities needs to be pursued in both external deficit and surplus countries,” the OECD said.
The eurozone witnessed a 0.6 per cent drop in output in the final quarter of 2012, deepening the bloc’s recession and compounding fears that meaningful growth will continue to elude the advanced economies in 2013.
The OECD acknowledged that implementing structural reforms could dig into government budgets, entailing cuts or tax rises at a time of fiscal austerity. But the eventual gains would outweigh the short-term costs.
“In the longer term, the effect of structural reforms on the budget will differ mainly according to whether they boost growth through employment or productivity. In both cases, reforms generate higher tax revenues, but only in the case of employment are they likely to significantly improve the budget balance,” the report said.
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