More optimistic on US recovery than euro zone: Angel Gurria

Angel Gurria, secretary-general of the Organisation for Economic Co-operation and Development (OECD) speaks to NDTV on the sidelines of the World Economic Forum 2013 about recovery in global, US and European economies.

 

Here is the edited transcript of the interview:

 

NDTV: It's such a pleasure to have with us the Secretary General of the OECD, Mr Angel Gurria. Thank you so much for taking time out to speak with NDTV. What's the sense that you're getting on the overall global economy, is global recovery gathering steam and will 2013 be a better year than 2012?

 

ANGEL GURRIA: I think it's going to be a year of consolidation; it's not going to be much better. In 2012 you still had a lot of contraction, a lot of negative growth; in 2013 we'll be a seeing, in the 2nd half, some recovery in Europe. It may still be negative for the whole year but we will enter 2014 with a more positive spirit.

 

NDTV: So you're saying Europe will be in recession in 2013, that's how you're seeing it?

 

ANGEL GURRIA: Yes certainly. The Euro area, it uses a common currency and also some other countries that don't use it, but are not doing very well. The other problem is that in Europe, unemployment is still growing. In the Euro area, it's gone through 11 per cent, now its 11.5-11.6 per cent. Well, some of us feel that it may start to approach 12 per cent towards the end of the year. So it's pretty serious and then, when you take the number of youth unemployed, it's about double or triple these gross national averages. So it's a big challenge in that sense.

 

NDTV: A big challenge yes, but do you think we'll be able to make significant progress? Because policy makers have been doing a lot, whether it is avoiding the Eurozone breakup, or it's the US policy makers. So, give us a sense of how much action we'll see on the policy front to ensure the US getting back on track & Eurozone getting out of recession.

 

ANGEL GURRIA: There are 2 types of policy actions, one is to avoid the house from going under or catching fire, the other is that now that you've avoided the configuration, what do you do about it? And I think, we've avoided the configuration to a great extent. US did not go into the first fiscal cliff. Now they've put it out to May, hopefully they'll not go into the second fiscal cliff! Why should they, if they can avoid it you know? IT makes all the sense in the world not to go into a fiscal cliff. The question with US will be more giving the medium and long term signals and giving a sense that the politics is not so polarised that they cannot reach a common sense agreement about the future of the economy. If they get to that minimum level of consensus, then its ok; US economy is very vibrant, very flexible; it can turn under a dime as they say like the London cabs you now, but just get the context well, the governance well. In the case of the European Union, it's more complex because there are 27 realities; you still have the Greeks smarting, you still have Ireland, Portugal in tough adjustment programmes, and you have Spain and Italy, which are beginning to normalize their market situation, which were under great pressures until recently.

 

NDTV: So you're more optimistic on the US recovery than the Eurozone?

 

ANGEL GURRIA: In terms of growth numbers, yes. But as I said, Europe is perhaps creating more long term governance and institutional progress than the United States. Europe is creating the emergency measures, EFSFs; those are great, not to use them, but just to know they are there just in case you need them. Second, fiscal union banking union, more and more issues on the political side, even on the common external policy side, so moving towards a political union; Europe is moving in that direction. And then you have countries like Japan, which have been flirting with deflation, for more than a decade and which are now having relatively positive numbers, only because they are in these big stimulus packages. But their debt is upwards of 200 per cent of GDP. That means, that there hasn't been a moment that they have stabilized since debt started coming down, because they are already on an unchartered territory. Do they know of any other G8 country that is on a debt ratio 200 per cent of GDP? If interest rates are at 0.1 per cent, then probably it's not too bad, but if it becomes 1 per cent or 2 per cent, then it means you're going to be paying 4 or 5 per cent every year of GDP just for interests; that's huge! And then the emerging powers, China, India, they are back, in the sense that they were decelerating very fast. In the case of China I would say by design, because they were trying to avoid over-heating, and then now they are back to close to 8 per cent. We think they can sustain a cruising speed of 8 per cent without too much overheating.

 

NDTV: Are you that optimistic about Indian growth?

 

ANGEL GURRIA: In the case of India, last year was about slowdown, not recession, not negative, not contraction, but it was a slowdown, a sharp one and now it's back again! We think it's going to be a better year and therefore they're going to play the role of locomotives again. Now the problem is, do they have broad enough shoulders to hold the rest of the world? NO. We cannot ask China or India or even China, India, Brazil and Mexico together. They can help to pull the train, but they can't really make it move at the right speed, if Europe does not pick up speed, if the US does not pick up speed.

 

NDTV: So you're saying it's very critical for the developed markets to come out of the current crisis and the emerging markets cannot alone pull out the world out of the crisis?

 

ANGEL GURRIA: Yes. And there's only one way. You ran out of monetary policy room, interest rates are at 0, you ran out of fiscal policy room, everybody now wants to reduce deficits. Reduce the debt, it cannot spend its way out of the recession. So what they got to do is go structural. They got to look at education, innovation, at competition, at the tax structure, but also at the health system, very expensive growing, also have to look at flexibility in the labour markets, in the product markets, R&D, these are the things that will keep growth going, and jobs being created in the medium & long term.

 

NDTV: Any policy prescriptions for Indian policy makers?

 

ANGEL GURRIA: Well we never give prescriptions, we only produce best practices, and then we present them to the countries, so that they choose. We have a very active dialogue with India, and we are preparing our third full economic survey; we are preparing to perhaps have some people on the ground in Delhi, maybe a modest presence, so we are engaging. We believe that we cannot be a global institution, we do not want to be universal. But with global impact, if we do not engage, with a country like India. At the same time, we believe India has something to gain from this engagement,

 

NDTV: Presence in India would be a very significant...

 

ANGEL GURRIA: We invited India to perhaps become a member if they wanted about 5-6 years ago. The timing is theirs to choose.

 

NDTV: And the offer is still valid?

 

ANGEL GURRIA: Of course. But the substance of the engagement is critical here. Membership or not, I think we can both benefit a lot.

 

NDTV: All right Mr Gurria, we'll leave at that. Many thanks for taking out time to talk to us.

 

ANGEL GURRIA: Thank you.