Some dragging of feet over structural reforms

Even though many governments are well equipped to implement structural reform challenges, not all are actually tackling them.

Swiss Re experts argue that structural reforms such as reducing the difference between before-tax and after-tax wages and cutting back structural unemployment - caused, say, by skill mismatches – can have a positive impact on economic growth and living standards, even in the short run.

Concrete structural reform priorities at a national level as well as cooperation at the global level should be coupled with fiscal policy measures, such as infrastructure spending. However, most countries haven't yet initiated such structural reforms.

Says Swiss Re's investment strategist, Jerome Haegeli: "Central banks should step aside by unwinding their ultra-loose policies in a steady, predictable manner and thereby place governments in the spotlight to implement much-needed structural reforms"

To have meaningful impact, structural reforms need to be tailored to the respective economic environment. In today’s relatively weak growth environment, it's important to prioritise reforms that stimulate the economy already in the short-term.  Swiss Re consequently emphasises the importance of how reforms are packaged, timed and sequenced, which if done the right way, could also limit near-term growth contractionary effects.

Besides country-specific reforms, governments should also rethink the institutional setup. In Europe, for instance, the need to complete the Capital Markets Union is more pressing than ever. Regrettably, policy action has yet to materialise and has now unfortunately stalled with the Brexit vote.


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