- The document discusses the challenges posed by secular stagnation and the need for stronger policy action to escape the low-growth trap. It notes that exceptionally low interest rates create both financial distortions and opportunities for fiscal initiatives. - To boost growth, the document argues for targeted structural reforms combined with collective fiscal initiatives focused on quality investment in infrastructure and human capital. Maintaining open markets through domestic policies that support workers is also key. - Escaping the low-growth trap requires weaving together fiscal, structural, and trade policies to strengthen both short-term and long-term growth in an inclusive manner.

1. 2 December 2016
Catherine L. Mann
OECD Chief Economist
MEDEF Économie
La France peut-elle retrouver le
chemin d'une croissance forte ?
Global Prospects and Secular Stagnation:
Policies to Escape the Low-Growth Trap
www.oecd.org/economy/economicoutlook.htm
ECOSCOPE blog: oecdecoscope.wordpress.com/

2. Key messages
2
Weak demand growth and slow growth in potential
output means secular stagnation
… and broken promises
Exceptionally low interest rates generate financial
distortions and risks
… but also a window of opportunity
Stronger policy ambition needed to escape the low-
growth trap including structural polices woven with
… fiscal initiatives, undertaken collectively

3. Escaping the low-growth trap depends on
fiscal initiatives…but no blank check!
3
Note: Based on macro-model simulations of an assumed fiscal stimulus in the US worth ¾ per cent of GDP in 2017 and 1¾ per cent of GDP
in 2018; estimated fiscal stimulus in China of 1½ per cent of GDP in 2016 and 1 per cent of GDP in both 2017 and 2018; and estimated fiscal
stimulus in the euro area of 0.4 per cent of GDP in 2016, 0.2 per cent of GDP in 2017 and 0.3 per cent of GDP in 2018. The stimulus in China
and the euro area is assumed to be implemented through government final expenditure on consumption.
Source: OECD November 2016 Economic Outlook database; and OECD calculations.
World real GDP growth

4. Evidence of the low-growth trap:
Consumption and investment in advanced
economies remain sluggish next to past recoveries
4
Consumption Investment
Note: OECD shown. Current recovery shows since 2008Q1 including the forecasts in the dotted line. Previous 3 recoveries pre-
recession peak in 1973Q4, 1980Q1 and 1990Q3.
Source: OECD November 2016 Economic Outlook database.

5. Consequence of the low-growth trap:
Weak labour productivity means
weak wage growth in advanced economies
5
Labour productivity Real wage
Note: OECD shown. Current recovery shows since 2008Q1 including the forecasts in the dotted line. Previous 3 recoveries pre-
recession peak in 1973Q4, 1980Q1 and 1990Q3.
Source: OECD November 2016 Economic Outlook database.

6. Long-run consequences of low-growth trap:
Falling productivity growth
undermines long-term potential output
6
Measures of labour productivity growth
Note: Labour productivity growth is output per hour worked at
annualised rate. Source: OECD June 2016 Economic Outlook
database; OECD National Accounts database; OECD Productivity
database; OECD calculations.
Source: OECD preliminary results based on Andrews, D., C.
Criscuolo and P. Gal (2016), “Mind the Gap: Productivity
Divergence between the Global Frontier and Laggard
Firms”, OECD Productivity Working Papers, forthcoming;
Orbis data of Bureau van Dijk.
Widening diffusion gapDramatic drop in growth

7. Failure to get out of the low-growth trap
means broken promises to the youth
7Note: For LHS, OECD is the unweighted average of 34 OECD countries. 2013 for Chile and the United States. Youth aged 15-24 for Japan.
Source: OECD calculations based on national labour force surveys; OECD Short-Term Labour Market Statistics database.
Inactive and unemployed youth
Share of all youth (15-29 years old)
Change in OECD employment rate
From Q4 2007 to Q4 2015, % pts

8. Keeping promises to older people is more
difficult with low growth and low returns
8
Note: The chart shows the impact of falling interest rates on real incomes in retirement for a defined contribution scheme. Annuity payments
calculated for the same hypothetical individual contributing 10% of wages over a 40 year period. The assets are invested in a portfolio comprising 60%
of variable income (fixed return of 4.5%) and 40% of fixed income (historical 10 year government bonds yields, kept to maturity) and used at
retirement to buy an annuity with a life expectancy of 20 years at age 65 using actual government bond yields for calculating the annuity premium.
Constant annual inflation of 2 per cent and productivity growth of 1.5 per cent are assumed.
Source: OECD Business and Finance Outlook 2015.
Falling retirement income for a given contribution

9. Productivity differences are correlated
with wage inequality
9
Note: Data are for 2013. OECD is the unweighted average of the countries for which data are available. The
P90/P50 ratio is labour income or labour productivity of the firm at the 90th percentile divided by the
corresponding value of the firm at the median. Labour income is total compensation including taxes and the
employer’s and employee’s social security contributions.
Source: OECD estimations based on Saia and Schwellnus (2016), “Decoupling of Productivity and Median
Wage Growth: Micro-Level Evidence”, OECD Economics Department Working Papers, forthcoming; Orbis.
Wage inequality and productivity dispersion
across firms
Higherwageinequality
Greater productivity
dispersion
Inequality in income is rising in the OECD
Real household disposable income, total population
Note: OECD is the unweighted average of the countries for which data are available.
Source: OECD estimations based on Kappeler et al. (2016), “Decoupling of Productivity and
Median Wage Growth: Macro-Level Evidence”, OECD Economics Department Working Papers,
forthcoming; OECD National Accounts database; OECD Earnings database; OECD Income
Distribution database; OECD calculations.

10. 10
Exceptionally low interest rates
distort financial markets and
raise risks…
but create window of opportunity

11. -1
0
1
2
3
4
5
0 3 6 9 12 15 18 21 24 27 30
7 October 2016
Average October 2010
%
years ahead
Exceptionally low and negative interest rates
on long-term sovereign bonds
11
Source: Bloomberg; and ECB.
Yield curves for government bonds
Euro areaUnited States Japan
-1
0
1
2
3
4
5
0 3 6 9 12 15 18 21 24 27 30
7 October 2016
Average October 2010
%
years ahead
-1
0
1
2
3
4
5
0 3 6 9 12 15 18 21 24 27 30
7 October 2016
Average October 2010
%
years ahead

12. Lower long-term growth prospects
contrast with asset price inflation
12
Equity pricesLong-term GDP growth expectations
Change in the past five years
Note: Difference between April 2011 projections of average annual GDP growth over 2012-2021 and April 2016 projections of average
annual GDP growth over 2017-2026. OECD and World estimates based on weighted average of countries shown, using 2015 PPP shares.
Source: Consensus Forecasts; Thomson Reuters; and OECD calculations.

13. 13
To escape the low-growth trap:
Targeted structural policy
Avoid trade policy pitfalls,
Deploy fiscal initiatives

14. Estimated frontier spillover (% pa) associated with a 2% point increase in MFP
growth at the global productivity frontier
Source: Saia, A., D. Andrews and S. Albrizio (2015), “Public Policy and Spillovers From the Global Productivity Frontier:
Industry Level Evidence”, OECD Economics Department Working Papers, No, 1238.
France
0.0
0.1
0.2
0.3
0.4
0.5
Barriers to
Entrepreneurship
Cost of
Bankruptcy
Legislation for
Entrepreneurs
Basic Research University-Industry
Collaboration
Trade with the
Frontier
Participation in
GVCs
Managerial quality
GlobalisationEntry and Exit Innovation policies Management
Structural policies to exit the low-growth trap
Structural policies shape productivity diffusion

15. Structural policies reduce skill mismatch to exit the low-growth trap
Reallocate resources to most productive firms
and support worker transition
15
The probability of skill mismatch and public policies
Entry and Exit Labour mobility
Source: OECD Future of Productivity.

16. Avoid trade policy pitfalls
Trade intensity boosts productivity growth
16
Note: Scenario in which world and OECD trade intensity (exports plus imports as a share of GDP) increases by 1.3 percentage points per annum
(the average from 1986-2007) from 2017. The effect of this increase on OECD total factor productivity growth is shown. For further detail see OECD
Economic Policy Paper “Cardiac Arrest or Dizzy Spell: Why is World Trade So Weak and What Can Policy Do About It?”.
Source: OECD June 2016 Economic Outlook database; Égert and Gal (2016); and OECD calculations.
World trade intensity
Raising
trade
intensity 0.2% pts
gain
OECD annual productivity growth
Average 1986-2007

17. Avoid trade policy pitfalls
Trade restrictions would hurt output and risk jobs
Reducing trade costs promote growth
17
Medium-term GDP impact of different
trade scenarios
Note: The implementing trade facilitation measures scenario shows the impact of a trade cost reduction by 1.3% across all sectors in all countries,
an estimate of the global average derived from the OECD’s Trade Facilitation Indicators. The imposing trade restrictions in major economies
scenario shows the impact of a goods trade cost increase of 10 percentage points for China, Europe and the United States against all trading
partners, equivalent to an average increase in tariffs to 2001 levels, the year when trade negotiations under the Doha Development Round started.
Source: OECD METRO model; and OECD calculations, OECD TiVa database
Share of total employment embodied
in foreign demand

18. Deploy fiscal initiatives
Low interest rates have created a window of
opportunity for multi-year fiscal initiative
18
Fall in government interest payments
Estimated budget gains over 2015-17 due to lower interest rates
Note: Budget gains calculated based on general government debt at the end of 2014, assuming that 25% of this initial debt
stock matures each year, comparing the interest rate on 10-year government bonds in 2014 with the interest rate for 2015 and
the 2016 average to August for 2016 and 2017.
Source: OECD June 2016 Economic Outlook database; and OECD calculations.
Number of years a permanent investment
increase of 0.5% of GDP can be funded
with temporary deficits

19. Deploy fiscal initiatives
Fiscal initiatives mix spending, tax, structural
policies for growth and equity focus
19
Impact of spending reform Growth
Income of
the poor
Countries with most
room for gains
Improving education
CHL, GRC, MEX,
PRT, TUR
Increasing public investment
and R&D
DEU, GBR, IRL,
ITA, MEX, TUR
Increasing government
effectiveness
FRA, GRC, HUN,
ITA, SVN
Pension reform
DEU, FIN, FRA,
JPN, POL
Increasing family benefits
CHE, ESP,
GRC, PRT
Decreasing public subsidies BEL, CHE
Source: Fournier and Johansson (2016), “The Effect of the Size and the Mix of Public Spending on Growth and Inequality”,
OECD Economics Department Working Papers, No. 1344, OECD Publishing, Paris.
positive impact uncertain or no impact

20. Deploy fiscal initiatives
Fiscal initiatives would strengthen growth
both in the short- and long-term
20
Long-term GDP gain
From a 0.5% of GDP increase in public investment
First-year growth gain
Note: Structural reforms shows the impact of a 10% reduction of product market regulations.
Source: Mourougane A. et al. (2016), “Can an increase in public investment sustainability lift economic growth?” OECD
Economics Department Working Papers, No. 1351, OECD Publishing, Paris; and OECD calculations.

21. Contractionary Mildly contractionary Broadly neutral Mildly expansionary Expansionary
Contractionary
Mildly contractionary
ARG, BRA, COL, CRI,
GRC, SVK
BEL
AUS, GBR, IDN,
KOR
Broadly neutral
CHL, CZE, DNK, ESP,
IND, IRL, ISR, JPN,
LTU, MEX, NZL,
PRT,TUR, SWE, ZAF
FRA, RUS, AUT,
FIN, NLD
CHE
Mildly expansionary HUN SVN
CAN, ITA, NOR,
POL
DEU, EST,
LVA
Expansionary ISL CHN USA, LUX
OECD recommends less expansionary policy than projected
Recommended fiscal stance for 2017
Projected
fiscal stance
for 2017
OECD recommends more expansionary policy than projected
Deploy more robust fiscal initiatives:
Most countries are moving toward the right
fiscal stance, but many could do more
21Source: OECD November 2016 Economic Outlook database; and OECD November 2016 Economic Outlook Special Chapter,
“Using fiscal levers to escape the low growth trap”.

22. Stronger collective action is needed on
fiscal and structural policies
22
Use window of opportunity of low interest rates for fiscal initiatives
• Focus on quality investment to boost human capital and infrastructure
• Combine with structural policies to raise demand, long-term potential output and
equality
• Collective action yields more gains
Implement policy packages to boost growth and inclusiveness
• Increase the pace of structural reforms and supporting actions
• Many policies boost inclusive growth, productivity and employment
Maintain open markets for trade and investment
• Support by domestic policies to help worker transition, strengthen social
protection and ensure gains are shared

23. THANK YOU!
The Future of
Productivity
www.oecd.org/economy/economicoutlook.htm
www.oecd.org/global-forum-productivity
www.oecd.org/eco/growth/goingforgrowth.htm
ECOSCOPE blog: oecdecoscope.wordpress.com/