In its new edition of the Economic Outlook, the OECD is expecting a “soft landing” of the global economy as the latter is believed to already have reached its limits to expand much further. However, the OECD does not exclude a “sharper-than-expected-slowdown” resulting from the combined effects of a looming trade war, financial instability hitting emerging markets and a hike in oil prices. The OECD’s call on governments to be pro-active and start preparing the ground for an internationally coordinated fiscal expansion in case these downside risks indeed materialise is to be welcomed.
Nevertheless, when analysing market dynamics, the OECD is relying on the old and outdated concept of “non-accelerating inflation rate of unemployment’ (NAIRU) – an unfortunate revival of pre-crisis theory in a world where wage dynamics are almost flat. This contrasts with past OECD analysis. Indeed, over the past years, the message has been that the link between lower unemployment and wages had been broken. Given falling unemployment rates, wage dynamics should have been higher, thus supporting instead of holding back the economy.
It is also clear that the model of ‘finance-led growth’ needs to be abandoned and replaced by a model of ‘wage-led growth” where fair wages instead of ever increasing debt drive aggregate demand and economic activity forward. Otherwise, our economies will remain in the trap where “we cannot do without financial bubbles but can’t continue to rely on them either”. Here, TUAC welcomes the attention paid by the special chapter in the Outlook on the fact that real wage growth has been decoupled from productivity over the past two decades and that this has given rise to higher inequalities as productivity gains failed to be widely shared
Read the full analysis from the TUAC secretariat in the attached pdf