With the world economy today experiencing turbulence on a number of diverse fronts, OECD countries are preoccupied with meeting these challenges.

More...

Ireland has been the OECD’s fastest growing economy for several years, driven by strong consumer demand, fixed investment and a buoyant global demand in areas like IT, pharmaceuticals and financial services.

Improving the diversity of biological habitats and ecosystems is a vital goal in itself, yet policies to encourage biodiversity, like most legislation, will have both supporters and naysayers. Limitations on land use to protect biodiversity can sometimes reduce income, but have broad benefits for the general public.

Now at Harvard, Professor Sen has taught around the world, and is perhaps most noted for his work on development, human development, poverty, gender and welfare, for which he won his Nobel prize. His wife, economic historian Emma Rothschild, has written for the OECD Observer (The politics of globalisation circa 1773, No 228, September 2001).
For more information, visit http://nobelprize.org/nobel_prizes /economics/laureates/1998/ sen-autobio.html

2008 will be a decisive year in the battle against climate change. Hopefully, it will see us forge an international consensus so an agreement can be reached in Copenhagen in 2009 that will allow us to build on the Kyoto Protocol.

Anthony Gooch took up his post as director of public affairs and communications at the OECD on 1 April 2008. Before joining the OECD, Mr Gooch led the European Commission’s media and public diplomacy operations in the UK projecting the EU’s policies on global issues including climate change, trade and development.

Klaus Schmidt-Hebbel has been appointed chief economist of the OECD. A national of Germany and Chile, he joins the OECD after 12 years as chief of economic research at the Central Bank of Chile. From 1988 to 1996 he was successively economist, senior economist and principal economist at the World Bank.

International trade is very prominent right now. Can we start by looking at Switzerland's position?

As a very export orientated country, trade is extremely important to us. Switzerland has for years been open to trade deals, both as a member of the European Free Trade Association and through bilateral agreements, with 19 in all now.

We hear again and again that we must choose between having a stable climate and having a strong global economy. This is a false choice.

Harsh financial reality often rides roughshod over good intentions when it comes to corporate and national balance sheets. Climate change is no exception, for though it may rouse worldwide concern, it also makes people uneasy because of how much it might cost and who should pay.

Financial market turmoil is at extreme levels and threatens economic growth in the OECD area and beyond. A near-term recession is likely in some countries, though the ultimate economic impact will depend on the ability of policymakers to soften the “credit crunch” now unfolding through the balance sheets of financial institutions.

The OECD’s campaign against harmful tax competition garnered a higher profile at the start of 2008 with disclosures concerning widespread tax evasion by Germans and others through Liechtenstein. The revelations drew wide media attention in Germany and beyond, and have prompted fresh resolve in many OECD countries to fight tax evasion via offshore havens. In fact, investigations have been launched in over a dozen countries since then, including Australia, Canada, France, Germany, Italy, New Zealand, Spain, Sweden, the UK and the US.

When Citigroup, a major US commercial bank, sold a large stake to an investor to offset subprime-related losses in late 2007, relief could be felt across the economy. But when people focused on the fact that the investor was Abu Dhabi Investment Authority, a wealth fund owned by a government in the Middle East, questions were raised.

Over the last two years, prices of agricultural commodities have risen spectacularly, and nominal prices for many crops and dairy products are at an all-time record high. This surge in prices is not unique, and when adjusted for inflation, the recent price spike is neither unique nor the biggest one to occur in the last three decades or so.

Economic forecasting is a worthy business. It helps governments, central bankers and companies take key day-to-day decisions about policies, investments, levels of spending, interest rates and so on. There is a rich and diverse supply to choose from, both in the public and private sectors. Whole businesses thrive on it and some major television networks have even turned watching the economy into a form of mass entertainment.

Until 2002, Japan was mired in a prolonged period of stagnation–the “lost decade”–which saw its per capita income drop from the fifth highest in the OECD area in 1992 to only 19th in 2002. The miracle economy that mesmerised the world in the 1980s looked decidedly weak. Now, thanks to exports and business investment, Japan has achieved the longest expansion in its post-war history.

Is the German Wirtschaftswunder back? The tide has obviously turned for the better in what for most of the post-war period was indeed Europe's “wonder economy”: after years of very slow growth at the beginning of the decade, the EU’s largest economy has been experiencing a strong upswing since 2005. The reforms of recent years, notably on the labour market, are showing positive results with the unemployment rate falling to a seven-year low of around 7.5%.

Internet 2011 alert; More oil investment; Financial reform needed; Economy; Germany signs tax convention; Pensions strength; Soundbites; Plus ça change…

With the world economy today experiencing turbulence on a number of diverse fronts, OECD countries are preoccupied with meeting these challenges.

It may be a truism among economists by now to state that more competition can improve a country’s economic performance by creating business opportunities, reducing costs of goods and services and boosting choice. But numerous laws and regulations still restrict competition in the marketplace.

Real estate is an important strategic sector in most economies–just think of the links to construction or the importance of property in the investment portfolios of pension funds. But it is also vulnerable to abuse for money laundering and tax fraud.

The gap in productivity and economic performance between the US and Europe has been a source of much debate in recent years, but many experts seem agreed on one point: that a lack of progress on reform in labour and product markets has not helped the European cause.

One of the main challenges for the future will undoubtedly be the migration of a highly skilled workforce from Asia (see for instance, “Globalisation and Labour Markets: Policy Issues Arising from the Emergence of China and India”, OECD Social, Employment and Migration Working Paper No 63, November 2007, www.oecd.org/migration).

The world economy faces challenges from the new powerhouses of China and India (see Nos 263 and 264/265, 2007). In order to compete, there is a case for closer co-operation between developed countries and, in particular, tighter integration in Europe.

Outlook deteriorates; Transport tackles CO2; Development setback; News shorts; Adult skills; Wikigender; Four new members; Pensions; Tax drag; Liechtenstein affair; Economy; Soundbites; Eastern promise; Brazil visit; Plus ça change…

Europeans, particularly women, generally work fewer hours than their US counterparts. How does this difference help explain the transatlantic gap in incomes?

How can governments promote higher living standards? A pertinent question for many countries in light of today’s rather unsettled economic picture. A basic step is to ensure good policies that support both productivity and labour market participation. Is this being done?

The Korean economic wave continues forward, with strong growth and low unemployment expected in 2008-2009. But the upsurge appears to have left some younger people behind. True, at 10%, Korean youth unemployment is below the OECD average of nearer 15%, and though the country has a lower employment rate, this reflects a much lower school drop-out rate and high participation in education.

With ageing and pressure on public finances, monitoring the pensions market has become an important task for policymakers. The market is vast: in 2006 the total OECD funded pensions market was valued at some $24.6 trillion, with a ratio of OECD pension fund assets to OECD GDP of nearly 73% in 2006, and above 100% in a few countries.

In response to reader demand, the OECD Observer's "Databank Indicators" table will be available here to print subscribers only, from January, simply by clicking "more" and typing their password. This table of comparable, easy-to-read, economic data will be updated on a monthly basis, usually before the 10th of each calendar month. All other readers online will be able to access the table each following month (See file below). To subscribe to the OECD Observer, please go to www.oecdobserver.org/subscribe.html.

Innovation has played a modest role in explaining growth in both China and India in recent years, but both countries have work to do to sustain their promising growth paths. Moreover, there are important differences between the respective challenges that each country faces.

The OECD economic forecast for 2008-09 has been revised down. For the authors of the latest OECD Economic Outlook, policy settings should be adjusted accordingly. Several shocks have hit OECD economies recently: financial turmoil, cooling housing markets, and higher prices of energy and other commodities.

OECD Observer No 264/265, December 2007-January 2008

Strong economic growth has given India’s people much to smile about as their country celebrated its 60th anniversary of independence this year. They could achieve much more still, though changes would be needed.   

Has monetary union helped structural reform in Europe? The 2007 Economic Survey of the Euro area attempts an answer. On the one hand, well-functioning markets and stronger supply incentives would offer scope to better exploit the benefits of the euro, by taking advantage of more price transparency and lower international transaction costs.

As the 8th annual OECD Forum in May showed, everyone agrees that innovation is important, but not everyone agrees on the reasons why.

 Economic prospects in the US, Europe and Japan have become less buoyant and more uncertain, OECD chief economist Jean-Philippe Cotis said today, Wednesday 5 September. Economic prospects were losing buoyancy, while the risks are becoming more ominous, he said. 

Are you confused about the state of your country and where it is going? Do you sometimes feel overwhelmed by the plethora of information–often contradictory–about the health of your economy, society or the environment? Governments should be judged on the effectiveness of their policies and projects, but against which benchmarks? And how can citizens take part in honest democratic debate about policy alternatives if they do not know what is really going on in their own country or region?

Announcements about enlarging the OECD’s membership and strengthening co-operation with other countries took much of the limelight at this year’s annual ministerial meeting. Below is an extract on enlargement from the Chair’s summary, followed by some selected highlights of the meeting.

OECD Observer No 262, July 2007

Property prices have been soaring for several years now in many OECD cities. A few markets, in UK and US cities for instance, have seen some cooling.

Dublin’s high property prices belie the city’s relatively small population–just over 1.1 million within the county. This pales compared with the 22 million inhabitants recorded for the metropolitan region of New York, which has the largest population of all OECD urban regions, and accounts for about 8% of the total population of the US.

Should the US current account imbalance still cause global concern? The question is never far from the headlines in any major business newspaper or television channel.

The world economy seems to have entered a rebalancing phase, with Europe in particular showing signs of firmer growth just as the US economy is decelerating. This would seem to make it as good a time for reform as ever, and several large and small OECD countries are in fact moving ahead. While all countries should continually adjust to new global circumstances, for some the need to reform is particularly pressing. The road ahead will be challenging, but there may be lessons for policymakers to help them smooth over some of the bumps.

Remember manufacturing? For some policymakers with an eye on the future, it may be easy to forget. After all, manufacturing is on the decline in the OECD area in terms of GDP and employment. But according to “The Changing Nature of Manufacturing in OECD Economies”, an OECD working paper, there are many reasons to take manufacturing seriously, not least because of its role in technological innovation.

The global economy is into its fifth year of growth. The expansion enjoyed in the OECD area has benefited from the dynamism of large non-member economies, especially in Asia. Globalisation has helped these countries raise living standards and reduce poverty. Indeed, the participation of China, India and other non-OECD nations in global economic flows has been increasing at a remarkable pace, now representing around half of total world GDP (measured by purchasing power parities), about 40% of world exports and nearly half of the world’s energy consumption. They have become massive outward investors, too.

With some of the world’s G7 economies finally shaking off the sluggish economic growth of recent years, what are the priorities for reform? “Beware of reform complacency” is a common warning issued by economists during times of economic buoyancy.

Death and taxation may be certain, but what about the tax level? The answer to that depends more on social status and where you work.

Ever wonder what marriage and cooks have to do with economic growth? The OECD has the answer. The organisation’s publications are stocked in university libraries around the world, but it has rarely produced a textbook. Yet, questions are often asked about how national accounts are calculated.

Until recently, the OECD area was enjoying a prolonged period of non-inflationary growth despite rising oil and commodity prices. Underlying these favourable trends, persistent wage moderation provided for both price stability and strongly rising profits as well as vigorous job creation in the main OECD regions.

Russia needs to do more to attract foreign direct investment, in the wake of its move in early July to make the rouble fully convertible. This would strengthen its economy and reduce its reliance on oil and gas revenues, OECD experts say.

Dynamic countries tend to have a fast-growing and competitive city at their hub, even if cities accumulate social and economic disorders as well. San Francisco is the wealthiest in a new OECD ranking of 78 metropolitan regions, with income of $62,350 per head, adjusted for purchasing power parity.

A decade ago, used tyres ended up mostly in stockpiles, as an eyesore for landfill. Some 62% of old tyres went that way in 1994. Today, more are recycled for use in adhesives, insulation, brake linings, and conveyor belts, for instance.

Poland has just marked 10 years as a member of the OECD. It has made considerable progress, but more is needed to speed up convergence with the most advanced European economies.

Are house prices peaking? They have certainly risen strongly, even in real terms – that is, when adjusted for inflation – since the mid-1990s in most OECD countries and, as the latest OECD Economic Outlook reports, their current upswing is the longest of its kind since the 1970s.

Few economic questions in recent times have challenged policymakers and economists the world over quite as much as the US current account deficit. Some worry that it is a global economic time bomb. More recently, a contrasting argument has emerged that dismisses the deficit as little more than a harmless mirage. But most serious experts simply agree that the present situation is unsustainable. What has caused the deficit? Why is it a problem and how should it be dealt with?

OECD governments have been more effective at bringing in reforms to raise labour productivity than at helping increase the number of people in work, according to this progress report on action taken over the past year to enhance economic growth in each of the 30 OECD member countries.

Mexico’s economic performance has improved, but not by enough, according to the OECD Economic Survey of Mexico released late last year. Since the 1995 financial crisis, Mexico has made progress in terms of economic stability, and the economy is far more open, too. But while poverty has fallen, it remains widespread.

The Irish economy has transformed in recent years. It grew by 5.1% in 2005, half a percentage point faster than in 2004, driven by strong domestic demand and positive net exports. This continued the remarkable performance of the past decade, during which Irish incomes per capita have caught up with the OECD average. The forecast is for more strong growth in 2006-2007, with unemployment (4.2%) to remain relatively low.

Home ownership, rather than rented accommodation, has become the norm in most OECD countries over the last 20 years. In fact, Germany is the only OECD country where the owner occupation rate is well below 50% of the total.

The picture of the German economy seems brighter than for quite some years. Should we feel confident?

Though legend has it that the ancient Olympic Games were founded by Heracles, a son of Zeus, the very first Olympics of the modern era took place in Athens, in 1896. The government at the time was unable to fund construction of a stadium, so a wealthy architect donated a million drachmas (over $100,000) to restore and use the Panathenaic Stadium, originally built in 330 BC.

The euro area has recorded a disappointing economic performance over recent years. Its per capita income grew on average by 1.3% between 2000 and 2005, compared to 1.9% in the US over the same period.

“The hills are high and the emperor is far away” is an old Chinese dictum that rapid growth is now putting to a severe test. Some consequences of rapid expansion, such as spending imbalances and regional lags, are probably inevitable in a country as large and varied as China, with its 1.3 billion people, multiple spoken languages and dialects, a score of provinces and five autonomous regions. But if they are not addressed, these problems could worsen, to the detriment of the economy.

Chile has elected its first female president, in Michelle Bachelet. As head of the left-leaning coalition which has led Chile since the country’s return to democracy in 1990, the new leader has promised continuity, though with a promise of more jobs and social justice. Tackling these issues could indeed make a difference, even if the economy has fared relatively well, as our OECD experts explain.

The pace of economic change in China has been extremely rapid since the start of economic reforms just over 25 years ago. According to official statistics, economic growth has averaged 9.5% over the past two decades and seems likely to continue at that pace for some time. National income has been doubling every eight years. Such an increase in output represents one of the most sustained and rapid economic transformations seen in the world economy in the past 50 years.

World steel production has grown at just under 2% per year–more than twice the rate of growth for the OECD as a whole–from 1990 to 2003. Experience within the OECD has been mixed with falling production in several countries, especially the Czech Republic, Poland and the UK, and strong growth in Korea, Mexico and Turkey and, from a low base, in Austria and Finland.

Insurance policies, whether covering travel, housing or business, increasingly carry fine print that carefully spells out whether or not they cover or exclude losses due to terrorism. Acts of “mega” terrorism, like the 9/11 attacks, or the bombings in Bali or Madrid, have overwhelmed insurance companies with claims, and insurers have since waived sole responsibility.

The Russian economy has now entered its seventh year of expansion, confounding almost everyone with an average real GDP growth of just under 6.8% per annum during 1999-2004. But the economy has come to depend heavily on the performance of a small number of natural resource sectors, above all oil. The trouble is, oil-sector growth has been slowing of late, despite record-high prices. Add to this a number of persistent institutional weaknesses, and doubts start to creep in about Russia’s capacity to sustain high growth over the longer term.

No-one knows exactly what the economic consequences of the Katrina hurricane in the United States will be, but the OECD can offer some key observations, said Jean-Philippe Cotis, the OECD's chief economist, as he opened this media briefing held on 6 September to outline the OECD's 2nd interim economic assessment of the year, two months before the next OECD Economic Outlook.

The outlook for OECD economy has recently become more downbeat. Six months ago, cautious optimism seemed warranted, with enough signs to suggest that the OECD-wide economy was regaining momentum. But these have faded somewhat.

Spain’s economy has been performing well, but more needs to be done to foster continuing convergence within the euro area, the latest Spain economic survey warns.

Disappointment about persistent economic underperformance is now widespread in several major OECD countries, particularly in the EU and Japan. At the same time though, governments accept that restoring growth is key to preserving standards of living, particularly at this time of rapidly ageing societies. Achieving this will be hard.

The Brazilian economy is bouncing back, but is the recovery here to stay? Brazil’s economic recovery is now well under way. Following a few years of unimpressive growth, the economy has bounced back more strongly than anticipated, with GDP growth of more than 5% in 2004, the fastest expansion in 10 years.

Services already make a substantial contribution to OECD economies, but they could contribute so much more. They need to become more competitive, for a start.

Why is it that US consumers are willing to spend more of their higher incomes on buying imports than is the case for foreigners on US exports?

Japan’s overall growth rate in 2004 had raised hopes of a full recovery from the stagnation of the 1990s. But output suddenly sagged again, as new data showed three straight quarters of decline. But the economy can get back on track in 2005.

If you are about to buy a house or rent space in the heady property markets of London, New York or Paris, then you may be bewildered by the consistent decline in property prices in Japan in recent years.

The adverse effects of the oil price shock are currently working their way through. But will prices settle back, or are higher oil prices now a fact of life?

Though the global recovery has been marking time, the conditions are in place for the global recovery to pick up momentum.

Since the 2001 slowdown, the world economy has moved in fits and starts. Economists as well as the general public are now longing for a smooth and sustained recovery, undisturbed by chronic geopolitical risks or abrupt gyrations in oil prices and financial markets.

The German economy is at last emerging from a three-year period of near stagnation. Domestic demand had been shrinking over the last couple of years, as a poor labour market performance weighed down on consumer and business confidence. But, as the latest OECD Economic Survey of Germany points out, a strong and competitive export industry is helping the OECD’s third largest economy recover its strength as world trade growth expands more rapidly.

Though I am a political rather than economic journalist, I grapple with economic realities in my work. Frankly, I find it hard to trust the experts – even those at the OECD! (Maybe my scepticism is typically French, but I’ll get to that in a minute.)

Since the 2001 slowdown, the world economy has moved in fits and starts and economists as well as the general public are now longing for a smooth and sustained recovery, undisturbed by chronic geopolitical risks or abrupt gyrations in oil prices and financial markets.

Luxembourg had the highest GDP per head in 2003, at over $50,000, above the US, Norway and Ireland, according to the recently published annual pocket data book, OECD in Figures 2004.

The momentum of the recovery projected in our Economic Outlook last spring has been only marginally dented so far by higher oil prices. By and large, the recovery continues to unfold as forecast at that time, with real GDP set to expand by around 3.5% in 2004 in the six largest OECD economies as a group.

“The end of World War II marked the beginning of a long period of prosperity in most countries now members of the OECD… and in many countries per capita incomes tended to catch up with American levels,” OECD Chief Economist Jean-Philippe Cotis observes in his foreword to Understanding Economic Growth.

Why is broad-based economic reform so difficult? And, even more fundamentally, what is economic reform anyway? A clear understanding of the problem offers the best hope of doing better in the future.

How far has the OECD economy travelled in the last two hundred years? According to economic historian, Angus Maddison, GDP per capita worldwide has risen more than eightfold since 1820, compared with a fivefold increase in population, though the rate of growth has been uneven by time and by country.

World production of crude steel rose by 6.1% in 2002 to total 902.2 million tonnes, with the OECD accounting for more than half of the total. But the OECD’s 53.3% share was lower than its 55.2% showing in 2001, with output rising by 2.5%.

University funding is hitting the headlines across Europe. In January the UK government only narrowly won a parliamentary vote to reform funding of higher education, after the prime minister, Tony Blair, put his “authority on the line”. Other European leaders will have been watching closely, as they also plan to revamp their higher education systems.

After a drawn-out period of fits and starts, a palpable recovery has finally taken hold across the OECD. Yet, the persistence of very large current account imbalances at this early stage of the recovery may complicate the encouraging outlook.

Japan’s economic recovery has been the highlight of 2003, with strong growth particularly in the second quarter. But as Randall Jones of the OECD’s Economics Department explains, challenges remain.

Reforms that instil greater coherence in social and economic policies would help Chile build on its successes and get the economy back on to a stronger growth path.

Tax revenues fell slightly across much of the OECD area for the second year in a row, the latest edition of the OECD Revenue Statistics shows. Tax revenues (including revenues from compulsory social security contributions) as a percentage of GDP declined in 16 of the 27 OECD countries which reported data, with EU countries showing most of the drop.

We live in a multilateral, networked, world. It requires rules, of course, but these will never be strong without a system based on principles and values. Trade, business and science are just a few examples of areas where trust needs to be rebuilt. How ironic that mistrust should develop during today’s age of information, where knowledge and confidence, not ignorance and fear, should be the hallmarks.

Improving productivity is a goal in any business or economy, but a real difference in performance comes from the increase in productivity that comes from combining labour and capital. This relationship came into focus during the new economy boom as economists tried to explain how new technology and human capital worked together to lift growth potential to higher levels.