OECD Observer
News Brief– March 2008

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…

Outlook deteriorates

Inflation in the US and Europe is uncomfortably high as economies slow, the OECD has said in its latest interim assessment updating the near-term outlook for the G7 economies.

In a press briefing on 20 March 2008, Jørgen Elmeskov, acting head of the OECD Economics Department, pointed to continued turbulence in financial markets as the backdrop to the update, and said that global growth prospects had weakened since the December 2007 OECD Economic Outlook.

Mr Elmeskov saw three sets of factors whose effects are unlikely to fade soon. First, the real economy is not sheltered from financial turmoil, and declines in share and housing prices, particularly in the US, hold back demand. Second, the global housing cycle has turned, affecting residential investment and hence GDP. And third, household real incomes are being squeezed by soaring energy and food prices, even if currency appreciation has provided some offset in Europe and Japan.

The US economy is “now essentially moving sideways”, if not contracting outright, Mr Elmeskov said. The euro area’s deceleration has been less abrupt but growth is set to remain subpar. In Japan, the pace of underlying growth was softening as well. Meanwhile, inflation “exceeds comfort levels” in many economies, reflecting higher energy and food prices.

Mr Elmeskov described a rather uncertain policy context. Oil and other commodity prices may continue to rise, for instance, despite slowing activity. Also, the full extent of financial turbulence and its reverberations was as yet unclear. Meanwhile, short-run trade-offs between inflation and output may have changed in recent years, casting some doubts on the extent to which subdued growth will moderate inflation pressures.

The case for policy stimulus is stronger in the United States than in Europe or Japan, Mr Elmeskov argued, noting that US policymakers had already acted forcefully and on a broad front. In the euro area, automatic fiscal stabilisers would provide more support than in other regions, while in Japan any scope for responding to further weakening was limited. For data and more detail, see www.oecd.org/economics. The next OECD Economic Outlook will be released in June.

Transport tackles CO2

German Chancellor Angela Merkel will address the first International Transport Forum on climate change and transport at Leipzig on 28-30 May. The new International Transport Forum, a global body replacing the former European Conference of Ministers of Transport, will bring together ministers, politicians, key industry players, top researchers and high-level representatives of civil society from around the world to discuss how to reduce transport’s impact on global warming. The Forum will chart the strategies and measures that must be put in place, nationally and internationally, to cut global emissions. “The participation of Chancellor Merkel underlines the enormous challenge for the transport sector that global warming poses,” Jack Short, secretary-general of the ITF stated. See page 20.

Development setback

Total official development assistance (ODA) from the 22 member Development Assistance Committee (DAC, representing some 90% of total bilateral development aid) fell by 8.4% in real terms in 2007 to $103.7 billion, or to 0.28% of total GNI from 0.31% in 2006. The drop reflects earlier high-debt relief for Iraq and Nigeria. Most donors must now increase aid to get back on track towards their commitments for 2010, experts warn. Details at www.oecd.org/dac

News shorts

OECD has launched a new project to assess Adult skills. Based on its successful PISA programme for testing 15-year old students, the Programme for the International Assessment of Adult Competencies (PIAAC) will focus on cognitive and workplace skills. Like PISA, it will be a first for an international study. See www.oecd.org/els/employment/piaac.

Wikigender (www.wikigender.org), has been launched (see page 31).

Four new members have joined the OECD Development Centre. Egypt, Israel and Vietnam all became members on 18 March and former member Poland renewed its membership, for a total of 32 member countries. See video at www.oecd.org/dev.

On Pensions, OECD countries have agreed on further liberalisation commitments to establish a new, high standard for cross-border trade in insurance and private pensions services. For further information, see www.oecd.org/daf/insurance.

Tax drag

Families with children have paid less in tax as a percentage of their income in recent years in Australia, Hungary, Ireland and New Zealand, thanks to family-friendly tax policies. However, wage-earners in some other OECD countries, including Greece, Iceland, Korea and Mexico, have seen their tax bills hauled higher as tax rates rise in step with pay without tax bands adjusted accordingly. This “fiscal drag” affects pay raises indexed to inflation, for instance. Low wage-earners can also find themselves paying higher taxes if targeted tax concessions such as employment-conditional benefits or tax credits are not adjusted for inflation.

On average across OECD countries, the share of taxes and social security payments as a proportion of total labour costs fell slightly at most levels of earnings between 2000 and 2006, according to the latest edition of OECD’s annual Taxing Wages.

In many OECD countries, average full-time earnings rose considerably between 2000 and 2006, the most recent year for which comparative figures are available, with nine countries–the Czech Republic, Greece, Hungary, Iceland, and Turkey–showing nominal increases of more than 40%.

For more information and tables, see www.oecd.org/ctp/taxingwages. Order OECD (2008), Taxing Wages 2006-2007 at www.oecdbookshop.org, ISBN 9789264042100.

Liechtenstein affair

“Excessive bank secrecy rules and a failure to exchange information on foreign tax evaders are relics of a different time and have no role to play in the relations between democratic societies”, OECD Secretary-General Angel Gurría has said in response to disclosures concerning alleged widespread tax evasion by German citizens through Liechtenstein. The disclosures were widely reported and commented on in the media in recent weeks and have prompted inquiries in other countries too. Liechtenstein is one of three countries still on the OECD list of uncooperative tax havens; the two others are Andorra and Monaco.

Originally drawn up in 2002, the list initially included seven countries, and four have since made commitments to work with OECD and its partners to improve transparency. The list is intended to expose jurisdictions that fall short of best-practice standards in information exchange and transparency in banking, effectively providing a basis for illegal tax evasion for some of their customers.

“As long as there are financial centres that refuse to co-operate in bilateral tax information exchange and that fail to meet international transparency standards, residents in other countries will continue to be tempted to continue to evade their tax obligations,” Mr Gurría said. For more detail, visit www.oecd.org/taxation.


The slowdown in economic expansion in the OECD area was confirmed by the latest composite leading indicators. The indicator for the OECD area fell by 0.2 points in January and was 2.4 points lower than in January 2007. The latest data also point to a potential downturn in China and India, but to expansion in Brazil and Russia. The OECD composite leading indicators incorporate a wide range of data, such as building permits, order flows, long-term interest rates and sentiment surveys in a bid to deliver early signals of forthcoming trends in economic activity.

Inflation edged up as consumer prices rose by 3.5% in the OECD area in the year to January 2008, compared with 3.4% in the year to December 2007. On a monthly basis, the price level rose by 0.2% in January, unchanged compared with December. Excluding food and energy, consumer prices rose by 2% in the year to January compared with 2.1% in December. Consumer prices for energy increased by 13.7% year-on-year in January, compared with a rise of 12% in December. Consumer prices for food were up by 5.1% year-on-year in January, compared with 4.9% in December.

In the euro area, consumer prices (HICP) were up by 3.2% in the year to January, and in the US, the consumer price index increased by 4.3% over the same period, but rose by just 0.7% in Japan. Food prices rose sharply in some countries, by 12% in the Czech Republic and by 13.7% in Hungary. Energy prices were 18-20% higher in Finland, Greece, Norway and the US.

click here for larger graph

GDP growth slowed in the OECD area, rising by 0.5% in the fourth quarter of 2007, down from 0.9% in the previous quarter. In the US GDP grew by 0.2% in the fourth quarter of 2007, considerably less than the 1.2% growth recorded in the previous quarter, and Japan’s GDP rose by 0.9%, up from 0.3% in the previous quarter. GDP in the euro area grew by 0.4%, down from 0.8% in the previous quarter. Annual growth was highest in the UK at 2.9% and lowest in Germany and Japan at 1.8%.

Unemployment in the OECD area remained stable at 5.5% in January 2008 compared with the previous month and 0.3 percentage points lower than a year earlier. The rate in France was 7.8%, 0.1 percentage points lower than the previous month and 0.9 percentage points lower than a year earlier.

Trade growth in goods in the G7 countries grew a seasonally-adjusted 2.6% for exports and 2.2% for imports in the third quarter of 2007–the highest quarterly growth rate since 2005.


On Liechtenstein...

“Tax avoidance is the second oldest profession in the world, and just as difficult to control.”
Mike Warburton, Grant Thornton.
The Independent, 5 March 2008


“More graduates, less literacy: This is not a winning formula.”
The Gazette, Canada, 2 March 2008

…and banking

“No industry has a comparable talent for privatising gains and socialising losses”
Martin Wolf, FT economist, quoted in The Guardian, 23 January 2008

Eastern promise

Record levels of foreign investment have been reached in OECD countries. One driver of this has been in eastern Europe, where OECD economies have moved from being relatively closed to international investments 15 years ago to become some of the most dynamic in the OECD area. According to the latest edition of Investment News, the stock of foreign direct investment (FDI) in the Czech Republic, Hungary, Poland and Slovakia have increased by an average of 23% each year for the last decade. Inflows have remained firm, and are strongly linked to the booming car manufacturing and assembly sector in these countries.

In the OECD area, with an FDI outflow of US$229 billion in the first three quarters of 2007, the US remains the leading foreign investor in OECD countries, followed by France with $152 billion. In January 2007-September 2007, total net OECD outflows amounted to $359 billion, the highest level of net outflows ever recorded from the OECD area. France, Germany, Japan, Luxembourg, Spain, the UK and the US accounted for nearly two thirds of the total.

For more data, see Investment News, Issue No 6, March 2008 at www.oecd.org/daf/investment.

Brazil visit

Guido Mantega, Brazil’s finance minister, on a visit to the OECD headquarters in February 2008. Brazil is one of five non-member major emerging economies with which the 30-member OECD is strengthening its interaction as part of a new “enhanced engagement” programme, together with China, India, Indonesia and South Africa (see News brief, No 264/265, December 2007-January 2008, www.oecdobserver.org/newsbrief).

The OECD already has a strong working relationship with Brazil, including the publication of several reports: see www.oecd.org/brazil.

Plus ça change…

OECD countries have made significant progress, but if you ask “have they done enough? Are they on track?” the answer is unfortunately “no”.
Joke Waller-Hunter, “The environment: From words to action”, No 226/227, Summer 2001

Outlook deterioratesTransport tackles CO2Development setbackNews shortsAdult skillsWikigenderFour new members for the Development centrePensionsTax dragLiechtenstein affairEconomy; SoundbitesEastern promiseBrazil visitPlus ça change…

©OECD Observer No 266, March 2008