OECD 50-YEAR GLOBAL SCENARIO

Policy Challenges for the Next 50 Years Rintaro Tamaki Deputy-Secretary General and Acting Chief Economist 2 July 2014, Tokyo

The OECD will be 100-years old in 2060 What are the policy challenges for the next 50 years? The OECD 50-Year Global Scenario helps to highlight key global challenges and how they are connected

Policy Challenges for the Next 50 Years

2

Global economic growth will slow

GDP growth

3

Incomes will increase, but not have converged

GDP per capita as a share of advanced economies’ average level

4

China

India

Emerging economies (average)

0

5

10

15

20

25

30

35

40

45

50

2000-2010 2010-2020 2020-2030 2030-2040 2040-2050 2050-2060

5

The global economy will become more interdependent …

0

5

10

15

20

25

30

35

2010 2060

Per cent

Exports as a share of global GDP

…and multipolar as trade shifts to EMEs, and especially to Asia

Size and share global trade

6

Advanced-Advanced

25%

Advanced-Emerging

42%

Emerging-Emerging

33%

2060

Advanced-Advanced

47%

Advanced-Emerging

38%

Emerging-Emerging

15%

2012

Emerging economies will move into higher value-add activities

Value-added shares by sector

7

41% 31%

41%

29% 20% 22%

15% 17% 16% 21%

16%

21% 7%

13%

8% 9%

10% 12%

6% 8%

43% 49% 51%

58%

72% 69% 75% 71%

78% 71%

2010 2060 2010 2060 2010 2060 2010 2060 2010 2060

Services

High-skilled manufacturing

Other sectors (agriculture, energy and other manufacturing)

China India Euro Area Japan USA

8

There will be major shifts in specialisation

63%

42%

68%

39%

54% 57%

23%

39%

29%

43%

21%

36%

18% 22%

37%

29%

8% 15% 11%

25% 28% 20%

40% 32%

2010 2060 2010 2060 2010 2060 2010 2060

OECD

Emerging Asia

Rest of world

Manufacturing Services Agriculture Energy

Shares of global exports by sector

Getting more people into jobs will no longer be a key growth driver

Ageing populations reduce scope to grow through an increasing population

Innovation and productivity “catch up” will continue to drive growth

Increasing education and skills of workers is key

9

3 policy challenges

Sustaining growth

Tackling rising inequality

Protecting the environment

10

1. The Growth Challenge

Achieving future growth requires sound policies

Policy needs to support more dynamic, knowledge-based high value-added economies

11

0

1

2

3

4

5

6

United-States Japan Euro zone China India

Per cent 2010-2030 2030-2060

Ageing makes it harder to sustain growth

12

62

64

66

68

70

72

74

76

78

80

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060

Per cent

European union United States Japan China

Population aged 15-74 as a share of the total

Using migration to offset the effects of ageing will become harder

13

0

50

100

150

200

250

300

Euro area United States

BaselineScenario with less immigration

Million

* Scenario where migration falls due to narrowing income differentials

Labour force, 2060

2. The Inequality Challenge: rising income gaps in advanced countries

Ratio of gross wages of the top 90th to the bottom 10th percentile

Rising wages for high-skilled workers

Incomes of low-skilled in advanced economies fall behind 14

0

1

2

3

4

5

6

7

8

Italy Sweden France Japan Germany OECD - 29countries

UnitedKingdom

Canada UnitedStates

2010 2060

Growth will reduce income differences between countries and reduce poverty. But, by 2060, average inequality in the OECD average would be close to current US levels.

More investment in education, skills and life-long learning is needed

There will be more demand for progressive/redistributive policies, to balance against sustaining growth

15

3. The Environment Challenge

Million tonnes, CO2 equivalent

2010 48 700 million

tonnes

2060 99 500 million

tonnes

GDP will increase to four times its current level

The resource pressures will be huge, even if intensity falls 16

A new approach to policy challenges

Policies need to prepare for a shifting world

The case for structural reform is stronger and more urgent with new challenges

All dimensions of well-being will be more connected

17

The “globalisation paradox”

The global economy will be more integrated so closer cooperation is needed

The world will be multipolar so cooperation could be harder to achieve

18

OECD 50-year Global Scenario website

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Further reading

OECD Economics Department working paper series

OECD 50-Year Global Scenario framework

20