OECD Observer
News brief– Q2 2014

Global economy faces slower future–; –top earners capture more of income; Soundbites; Economy; Country roundup; Health spending starts to rise; Financing tough for SMEs; Development's productivity gap; Plus ça change… 

Global economy faces slower future— 

A slowdown in global economic growth and a continuing rise in income inequality are projected for the coming decades, according to a new OECD study, Policy Challenges for the Next 50 Years. Ageing populations and the gradual deceleration of growth in the large emerging economies will bring global rises in GDP down from an annual average 3.6% in 2010-20 to 2.4% in 2050-60.

Innovation and investment in skills will be the predominant drivers of growth. Climate change is also a factor, and Policy Challenges for the Next 50 Years says unless CO2 emissions are reduced, climate change could curb global GDP by 1.5% by 2060 and by nearly 6% in South and Southeast Asia. Technical advances will raise demand for high-skilled workers.

Without a change in policy, OECD countries would face a further large increase in earnings inequality by 2060, bringing them close to the level seen in the US today. Rising inequalities threaten growth, most notably by blocking economic opportunities. See http://oe.cd/Cn

–top earners capture more of income

The share of the richest 1% in total pre-tax income has increased in most OECD countries over the past three decades, as the top 1% of earners captured a disproportionate share of overall income growth over that time frame: up to 37% in Canada and 47% in the United States, according to new OECD analysis.

Even in traditionally egalitarian Nordic countries, the share of the top 1% increased by 70%, reaching around 7-8%. By contrast, top earners saw their share increase less sharply in France, the Netherlands and Spain.

The incomes of the poorest households have not kept pace with overall income growth, with many no better off than they were in the mid-1980s. On average, real incomes of the top 1% increased by 4% in 2010, while the lower 90% of the population saw their real incomes stagnate.

For more detail, see http://oe.cd/Co


Crisis of understanding

“It is extraordinary that here we are, nearly seven years in [from the financial crisis] and we still have an inadequate understanding of some of the key aspects of financial markets.”

–David Wright, secretary-general of Iosco, Financial Times, 19 June 2014

Fair play

“There need to be rewards for jurisdictions that play ball and consequences for the ones that don’t.”

–Jane Dellar, chief executive of the Chamber of Commerce, Isle of Man; Financial Times, 13 May 2014

Portugal’s austerity gain

“Changes had to be made very quickly, and that has been very painful for most people, but the end result is that the economy is much stronger and better able to compete on the world market than three years ago.”

–António Jorge, chief executive of Sogepoc, International New York Times, 6 May 2014

Wise move

“Just before the consumption tax hike, consumption on expenditures soared, [although] now they are declining quite sharply. But on balance, the decline after the tax hike had been as we expected or even less than we expected.”

–Haruhiko Kuroda, Bank of Japan’s governor, CNBC, 5 May 2014


GDP in the OECD area grew by 0.2% in the first quarter of 2014, down from 0.5% in the previous quarter. Private consumption was the main contributor, with 0.3 percentage points, while destocking reduced growth by 0.2 percentage points. Geographically, growth remained relatively strong in Germany and the UK—0.8% for both countries— while contracting by 0.1% in Italy. Growth rose by 0.3% in the EU. In Japan, GDP increased by 1.5%, up from 0.1% in the fourth quarter of 2013.

OECD-area inflation rose by 2.1% in the year to May 2014, compared with 2% in April. This small increase reflected energy and food prices, which rose by 3.4% and 2.2%, respectively, up from 2.7% and 2% in April.

Unit labour costs in the OECD area rose by 0.4% in the first quarter of 2014. Though there was a rise of 0.3% in labour compensation per unit of labour input, labour productivity fell by 0.2% for the first time since 2012.

Merchandise trade fell by 2.7% across the world’s major economies during the first quarter of 2014, as import growth stagnated. In China, imports and exports fell by 0.9% and 7.3%, by 3.3% and 2.9% in Canada and by 3.2% and 4.3% in the UK. An export decline of 5.8% outpaced an import growth of 1.9% in Brazil. Germany and Italy alone witnessed increases in exports of 2.1% and 1.5%, respectively.

The unemployment rate in the OECD area stood at 7.4% in April 2014, down 0.1% from the previous month. Some 45 million people were out of work, 4.9 million less than at the peak in April 2010. The unemployment rate eased by 0.1 percentage point to 25.1% in Spain and by 0.4 points in the US, but remained stable in Canada at 6.9%. It rose by 0.2% in Korea to reach 3.7%.

For latest updates on economic statistics, see http://www.oecd.org/std/statisticsnewsreleases.htm

Country roundup

Italy should do more to help immigrants integrate into society and learn the skills they need, according to a Jobs for Immigrants report. www.oecd.org/italy

France needs to get smarter in encouraging private-sector innovation, making public research institutions more accountable and channelling more funds into R&D projects, the OECD’s Review of Innovation Policy recommends. www.oecd.org/france

Strengthening primary health care and prevention programmes would help stem the growing tide of diabetes and other chronic health conditions in the Czech Republic, according to the OECD Health Care Quality Review. www.oecd.org/czech

Latin American and Caribbean countries need to do more to improve budget management, tax collection and public sector pay equality, according to a joint report with the Inter-American Development Bank (IDB). http://www.oecd.org/dev/americas

On 18 June Andorra committed to automatic exchange of information in tax matters, thereby becoming the 48th signatory to the OECD declaration. http://www.oecd.org/countries/andorra

Korea needs to implement a range of reforms to develop a creative economy for long-term growth, according to the OECD Economic Survey of Korea. www.oecd.org/korea

Canada should decrease housing market risks and overcome specific skills shortages, according to the OECD Economic Survey of Canada 2014. www.oecd.org/canada

The OECD launched a Portuguese-language version of its Better Life Index in Brazil on 9 June, increasing its reach to over 240 million Portuguese speakers around the world. www.oecd.org/brazil

Poland’s regulatory authorities should increase competition enforcement, and continue to remove red tape for entrepreneurs. www.oecd.org/poland

As Sweden plans to attain a net zero emission rate by 2050, it should reduce greenhouse gas emissions by improving the effectiveness of carbon tax policies and limiting sector exemptions, according to the OECD’s latest Environmental Performance Review of Sweden. www.oecd.org/sweden

Health spending starts to rise

Health spending has started to rise again in several OECD countries, after stagnating or falling during the crisis. Chile and Mexico saw strong increases in 2012, at 6.5% and 8.5% respectively. Health spending in Korea continued growing by 6%, while in the US, health spending increased by 2.1% in 2012. In Europe, health spending continued to fall in 2012 in Greece (down 25% compared with 2009), Italy, Portugal and Spain, as well as in the Czech Republic and Hungary, according to OECD Health Statistics 2014. For more, see http://oe.cd/Cq

Financing tough for SMEs

Start-ups and small firms, considered critical for ensuring growth and jobs, are not getting the access they need to finance, a new report says. According to Financing SMEs and Entrepreneurs 2014: An OECD Scoreboard, SMEs continued to face the dual challenge of an uneven recovery and bank deleveraging through 2012. The crisis has impacted SMEs more than large firms due to their greater dependence on bank financing. See http://oe.cd/Cp

Development’s productivity gap

Income levels in most developing and emerging countries will not catch up with advanced economies without efforts to boost productivity. A report, Perspectives on Global Development 2014, shows that while China, Kazakhstan and Panama may reach OECD income levels by 2050, several middle-income countries, including Brazil, Colombia, Hungary, Mexico and South Africa, will take much longer, unless labour productivity rises. For more, read http://oe.cd/Cl

Plus ça change…

“The problem of democratisation is closely linked with the problem of ‘poverty’ groups and areas, that is those groups which are socially disadvantaged to the extent that they are unable to take part in the general expansion of educational opportunities. Indeed, one of the most disquieting features of post-war educational expansion has been the baffling persistence of inequalities of educational opportunity.’’

“The ‘Educational Revolution’ in the OECD Countries’’ by J.R. Gass, Deputy Director, OECD Directorate for Scientific Affairs, in Issue No 34, June 1968

©OECD Observer No 299, Q2 2014

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