This Chart From A Confidential IMF Report Shows Why The G20 Has A Job To Do On Productivity

G20 finance ministers and central bank governors in Sydney.

A confidential report prepared for the Sydney G20 finance ministers meeting shows why it’s essential that the major economies work together on boosting growth.

The report, written by International Monetary Fund (IMF) staff with input from the OECD and the World Bank, is the basis upon which the G20 ministers today set a target over five years of an additional two percentage points in economic growth on top of current trends.

The report says:

Strengthened and cooperative policies would deliver stronger, more balanced and sustainable medium-term growth while reducing risks of renewed global turmoil. Simulations of a plausible reform scenario suggest that desirable product and labor market reforms, together with rebalancing policies in key external deficit and surplus economies, would raise world output by 2¼ trillion dollars by 2018 (about 0.5 percentage point higher growth per year), while reducing substantially global imbalances and lowering public debt ratios.

The IMF says joint action by the G20 could produce beneficial growth and reduce risks of renewed global turmoil.

“The recovery from the Great Recession has been disappointing, with G20 output still below longer-term trend,” says the report, Macroeconomic and Reform Priorities.

“Joint action is needed to boost output and to lower global risks substantially through more sustainable and balanced growth.”

The IMF, the OECD and the World Bank want to see increased output of goods and services.

To do this the G20 countries need to lift productivity and bring increased participation in the work force for all, especially women.

The report says:

There is substantial potential for reforms to support faster trend productivity growth. Closing the very large differences in productivity across countries, together with continuing to push out the technological and efficiency frontier, is the main driver of long- term growth. The speed of “catch up” in productivity and the rate of innovation depend in part on supportive policy settings. The ability of countries to achieve “catch up” in productivity has differed widely over the past decade, with underperformers among both emerging and advanced economies.

This chart tells the story of the cost of labour in advanced economies and the productivity return:

The report says one of the keys to productivity is stronger competition which reallocates resources to more dynamic firms and spurs innovation.

It says:

Competition in many markets, notably in the services sector, is held back by regulations that restrict activities to the detriment of consumers, users of intermediate products and new innovative firms. The cost and complexity of regulatory processes play a major role in deterring new businesses.

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