The global economy took a sharp turn for the worse following the collapse of Lehman Brothers in September 2008, and today it is increasingly apparent that the crisis has entered its second round. This time we are facing a combination of low growth and trouble in the financial sector, just as governments find themselves running out of economic policy options. 

The history of economic policymaking has been marked by a succession of “paradigms” defining the goals of economic policy and the instruments used to attain them.
OECD Chief Economist Pier Carlo Padoan looks at where we go from here.

Whether or not you believe they have been reformed enough, few institutions have received as much attention during the current economic crisis as banks.

But how much money do they really control and how can their behaviour affect our economies so much?

Financial market failures were a major cause of the economic crisis, but property markets, particularly for housing, have had a leading part to play too. From the subprime debacle in the US to the bursting of unprecedented real estate bubbles in Ireland, Spain and Greece, among others, the overheating and collapse of property markets not only hurt savings and investments, but was felt throughout entire economies, affecting construction, employment, lending, spending and more.

“Growth is turning out to be much slower than we thought three months ago,"  OECD Chief Economist Pier Carlo Padoan said when issuing his organisation's forecast update for major global economies on 8 September. 

Canada is a trading nation. As a geographically large country, rich in natural resources and with a relatively small population, trade was a natural starting point. But Canada has built on this foundation and today boasts a highly skilled and educated work force, a well-developed physical and financial infrastructure, a transparent and predictable regulatory environment, and a high degree of openness to trade and investment.

Canada’s labour market was spared some of the more dramatic peaks and troughs of the economic crisis. Why?

Why do some businesses, organisations, economies and even countries succeed in achieving their objectives while others do not? Important insights are provided if we treat each of these entities as a complex adaptive system, subject to the same processes as biological evolution.

Interview with James M. Flaherty, Minister of Finance, Government of Canada

“The government’s top priority is reducing the nation’s deficit and returning Britain to strong and sustainable growth. That means the right economic policies at home and creating the right economic environment abroad.

How can we all learn from a crisis? Today, we find ourselves in a disappointing, if not altogether unexpected, predicament. The very governments who took bold and decisive action in the period of the financial crisis 2008-09 to bail out banks and keep financial markets alive now find themselves on the receiving end of severe punishment from financial markets. How could this be?

Building tax administration capacity is needed to help spur development in Africa. A new survey shows that action is being taken, but more work is needed.

The financial crisis has taken a heavy toll on government finances and taxpayers are still footing the bill. Could private investors do more to help out? Mohamed El-Erian, CEO and co-CIO of PIMCO, believes they should. He explains to the OECD Observer.

The recent financial crisis has left a hole in the public finances of many countries. Yet, with the right preparation, governments may have been better placed to fund that gap. This holds lessons for future crisis resolution strategies.

A floor has now been placed under the banking crisis, albeit at a very high cost to the public purse.

We are celebrating the OECD’s 50^th anniversary during the tail-end of the worst financial and economic crisis of our lifetimes. It’s a good moment to take stock and to ask the right questions. Why couldn’t we avoid the crisis? Were the policies and the policy mix we promoted the right ones, and how can we adjust these polices to new realities? What is more, are we doing enough to prevent another crisis? Are our economic theories, our models and our assumptions still appropriate? How should our organisation’s work be adapted so that we continue fulfilling our founding mission of promoting better policies for better lives?

Is the worst economic crisis of modern times really over? Though there are risks to the downside, the latest OECD Economic Outlook points to a recovery taking hold.

Speculation and greed were at the heart of the global financial collapse. Reforms of financial regulation have gone some way to curbing their impact, but a lot more still needs to be done.

The financial system may be out of intensive care, but it would be wrong to assume it has fully recovered. Major questions remain over how banks operate and how they are regulated. The solutions aren’t always obvious, but they must be found if we’re to avoid another crisis.

How can governments restore public finances and promote sound economic growth at the same time? With budget deficits stretched and public debt at historical highs, it will not be easy. But the OECD believes that with the right mix of policies much progress can be made.

Governments and central banks managed to avoid a global economic catastrophe, but the crisis has left a legacy of nearly bankrupt governments. A quick return to solvency is required.

Structural economic challenges and preparing for recovery were the dominant themes at this year’s Ministerial Council Meeting (27-28 May), under the chair of Italy’s prime minister, Silvio Berlusconi. Fiscal challenges, jobs, green growth, innovation, development, trade and investment, and societal progress all figured on the agenda. These highlights are based on the full conclusions, which can be read at www.oecd.org/mcm2010

Hey you, stop wurfing and read about the 26 billion buck haircut!

“To reform and to perform” is the goal of many a serious politician. It is not an easy task.

Pensions are a major component of public expenditure, and a target for governments looking to streamline budgets. What are countries doing to manage costs at a time when populations are ageing at an accelerated pace?

Did globalisation contribute to the economic crisis and if so how? This is one of several interesting questions asked in Measuring Globalisation: OECD Economic Globalisation Indicators 2010. In snapshot mode, this book looks at the financial crisis, trade, technology and multinational enterprises, and asks how these may have influenced the proliferation of the crisis, just as they helped spread prosperity and wealth in the first place.

As the OECD reaches 50, it must continue to become more relevant, useful and open within a new architecture of global governance, argues Angel Gurría, in this extract from remarks delivered following the renewal of his mandate as OECD secretary-general.*

When Chile became the first South American country to join the OECD in 2010, the event was greeted as a seal on years of progress, not to mention hard work. Still, challenges remain, including in the fight against poverty, as Minister of Planning Felipe Kast explains in this interview with the OECD Observer.

In the aftermath of the financial crisis, one question is how to balance the short-term pressure on the health budgets with the long-term obligations to deliver ever better health services to the public. Striking the right balance is not an easy task.

With austerity the order of the day in most OECD countries, the public is understandably anxious that budget cuts do as little harm as possible to the services they depend on. Few sectors capture the dilemmas this poses for policymakers quite like healthcare.

According to the latest Economic Outlook, growth in the OECD will reach some 2.7% in 2010. But while the global economy may be out of intensive care, it remains very fragile, as underlined by market volatility, rising public debt and high unemployment. A key missing ingredient is confidence. What must be done to restore it?

Growth is picking up in the OECD area–at different speeds across regions–and at a faster pace than expected in the previous Economic Outlook (November 2009). Strong growth in emerging-market economies is contributing significantly. However, risks to the global recovery could be higher now, given the speed and magnitude of capital inflows in emerging-market economies and instability in sovereign debt markets.

As the world economy splutters back to life, policymakers have been focused on ending the jobs crisis. But despite the arsenal of policies aimed at assisting young people, the long-term unemployed and the unskilled, one of the most vulnerable groups of workers risks being forgotten.

The crisis has bitten deep, but unemployment in Germany has fallen. How?

Health spending rises; Round up; Soundbites; Benvenuto!; Economy; Food speculation question; Chinese flexibility welcomed; Slovenia joins the OECD; Plus ça change...

Praising the co-ordinated international actions in response to the economic crisis, International Labour Organization Director-General Juan Somavia, World Trade Organization Director-General Pascal Lamy, German Chancellor Angela Merkel, OECD Secretary-General Angel Gurría, World Bank President Robert B. Zoellick, International Monetary Fund Manager Director Dominique Strauss-Kahn (L-R in the photo) and issued a joint press statement on 28 April 2010 calling for continued “international efforts with the aim of ensuring a lasting recovery in the financial sector and strengthening growth in the long term, and to address the impact of the crisis on poor countries and vulnerable populations”.

Can a durable recovery come from greener growth? That largely depends on the policies. In 2011 the OECD will deliver its Green Growth Strategy. Here are some early pointers.

House prices in many OECD countries rose for more than a decade from the mid- 1990s–an unusually long and steep climb. Previously, booms typically lasted for about six years and house prices rose by about 45%; by contrast, the recent boom went on for twice as long and prices increased by an average of 120%.

“Special drawing rights”, a little-known quasi-currency, are important for developing countries and could become one of the world’s reserve monies.

A global crisis of long-term unemployment is looming. How can public-private partnerships help?

Managing local ecosystems can help create jobs and spur sustainable economic growth.

Financial literacy might not help ordinary people outsmart Wall Street professionals, but it can help people manage their funds.

Despite signs of recovery, make no mistake: this crisis is far from over. We are in the midst of the most serious jobs crisis since the Great Depression and the economic recovery is still very weak and fragile.

Rumours of capitalism’s demise may be premature. The question now is: what kind of capitalist system will emerge from the current crisis?

Current theories of portfolio management are at odds with the wellbeing of citizens. Only government policy can address this.

The recent economic meltdown was at root not a failure of character or competence, but a failure of ideas.

One of the side-effects of the global crisis has been a temporary narrowing of current account imbalances among the world’s major countries and economic areas. This is good news, but will it last? Policy actions may be needed.

Is policy sowing the seeds of the next crisis? There is a danger that it is. Imbalances in particular must be tackled.

One of the difficult challenges for governments facing a crisis is to keep  an eye on the wider picture. This is particularly true in OECD countries  today, as they fight down unusually wide fiscal deficits and heavy debt.  These problems are a sequel to the financial crisis that started in 2008.  Now, most countries, from the largest to the smallest, have to make  new sacrifices. People are understandably angry, feeling they are not  responsible for the current situation.

Unemployment in the OECD area is predicted to reach some 10% in 2010, up from about 5.6% in 2007. Men have been hit harder than women: across the OECD area, male employment has fallen by 3% since the recession started, while the decline for women stood at a tenth of that, at 0.3%. Hence the “mancession” tag bloggers and commentators have used to characterise the jobs crisis.

The deep scars of the crisis can be relieved through appropriate policy action, particularly in competition, jobs, taxes and financial services. This would bolster long-term growth too.

Now for sustaining growth–; –as China sets the pace; Greening Greece; Soundbites; Economy; Aid shortfall; Chile's new president; Tax watch; Plus ça change...

Spring is finally in the air for most OECD countries, as the signs of recovery start to multiply. The recession has been long and hard, so this is reassuring news. But while the worst of the crisis may be behind us, the recovery remains fragile, and there are still many policy challenges to address.

Has the crisis affected remittances from migrants abroad? One survey has found that migrants from Latin America based in the US are still sending money home even if that means cutting expenses, taking second jobs, working more hours or, if they have lost their jobs, dipping into their savings.

Ireland was the fastest growing OECD economy since the mid-1990s. It is now experiencing one of its most severe recessions. What explains this turnaround? How will the Irish economy recover?

Governments in Asian countries have been responding to the global crisis with stronger social policies. The economy should benefit.

The United States spent 16% of its national income (GDP) on health in 2007. This is by far the highest share in the OECD and more than seven percentage points higher than the average of 8.9% in OECD countries. Even France, Switzerland and Germany, the countries which, apart from the United States, spend the greatest proportion of national income on health, spent over 5 percentage points of GDP less: respectively 11.0%, 10.8% and 10.4% of their GDP.

More active education and employment policies, particularly targeted at minority groups, are needed to bolster its economic performance and bridge deep divisions within its society.

Could today's jobs crisis end up scarring the hopes of an entire generation? Even in the best of times, many young people have a hard time getting a foothold in the labour market, with youth unemployment often two to three times higher than for adults. In recessions, finding work gets tougher still. Moreover, many of those young people who have work are on short-term contracts and commonly find themselves first in line when it comes to lay offs-some 35% of workers aged 15-24 in the OECD area held temporary contracts in 2008. In this recession, there is extra cause for concern.

By sector-
International trade has declined steeply during the crisis, though how has the fall been reflected in different sectors and countries? Take the US, Germany and Japan, the three largest OECD traders-OECD countries account for roughly 60% of world trade. As shown in the top graph for total trade (which is the sum of imports and exports, rather than the difference, which is the trade balance as shown on page 5), machinery and transport equipment have broadly speaking been the main culprits, falling by over 11% in the US, 14% in Germany and 15% in Japan, comparing the second quarter 2009 with a year earlier. Lower energy prices have also contributed to fewer imports. Trade in fuel and lubricants fell by nearly 10% in the US and Japan, though exports by just over 3% in Germany. A closer look shows that fuel and lubricant imports in the US and Japan plummeted, by 13.6% and 18.1% respectively. Trade in manufactures and chemicals were not affected quite as badly, though it fell particularly steeply in Germany, by 6% and 3.6% respectively, year-on-year.

As actress Bette Davis once said, "getting old is not for sissies". Just when you expect to be reaping the rewards of a life of hard work, there is a surprisingly good chance that you will, instead, be struggling just to get by. In the mid-2000s, an average of 13.3% of people over 65 were living in poverty in OECD countries. An astonishing 45% of Koreans of that age were income poor, as were more than one out of every five older persons in Australia, Greece, Ireland, Japan, Mexico and the US. In only eight countries was the income poverty rate 5% or less among their oldest citizens.

Jobs crisis or no, it's best to invest in education. As this year's edition of Education at a Glance shows, men and women who have university-level degrees earn far more over the course of a lifetime than those who don't. In fact, men with higher education in Italy and the US can earn over US$300,000 more than their counterparts who do not have a university degree. Rewards tend to be lower for women, with Korea and Spain the exceptions.

Thanks to prompt and significant government responses to the crisis, many economies are experiencing initial signs of recovery. However, there is still much uncertainty concerning what lies ahead and unemployment is still rising in many countries. The OECD unemployment rate reached a post-war high of 8.5% in July 2009, with an OECD estimated 15 million extra out of work since the start of the crisis. In contrast, unemployment across the OECD was at a 25-year low of 5.6% in 2007.

With the crisis and sharp rise in unemployment, you might think anyone with a job these days should consider themselves lucky. Well, that depends.

International trade fell off the charts in the fourth quarter of 2008 and showed only a modest easing in the rate of decline in the early months of 2009. Well-regulated open trade is essential for economic recovery and development, yet in times of crisis, protectionism may appear an attractive solution. It should be resisted.

The world economy has hit a wall over the past 12-18 months. This was the opening message from INSEAD's Soumitra Dutta in a panel debate at OECD Forum 2009 to discuss the OECD's latest economic forecasts launched moments earlier (OECD Economic Outlook No 85, June 2009).*

Your article on Islamic banking ("Islamic banking: an asset of promise?" No 272 April 2009) suggests that financial temperance is still possible. The ratio of assets leveraged against capital cited in the article, 20 to 1 in US banks, 30 to 1 in Europe, yet only 10 to 1 in Islamic banks reveals just how much the financial system has made greed systemic.

The International Energy Agency (IEA) is 35 years old in 2009. A sister organisation of the OECD, it offers a timely reminder that a co-ordinated public response to a crisis can succeed.

The global economic crisis is affecting families and communities across the planet. With regions bearing the brunt of the crisis, affecting businesses, jobs and people generally, regional policies are very much part of the solution.