News brief– September 2004

OECD Observer

Recovery slows?

Slowing expansion may lie ahead in the OECD area, according to the latest composite leading indicators (CLIs), which are designed to provide early signals of likely turning points in economic activity. While the economic outlook remains quite bright (see next section), leading indicators collected up to July confirm the weakening performance reported in our last OECD Observer, with the six-month rate of change deteriorating in all G7 countries, particularly the UK and Italy.

The leading indicator for the OECD area as a whole edged up in July 2004 compared with June, but its six-month rate of change was down for the sixth month in a row, following an upward trend which began in April 2003.

The CLI for the United States increased by 0.1 point in July, but its six-month rate of change fell for the seventh month in a row. And though the euro area's CLI was unchanged in July, its six-month rate of change also fell again. The CLI for Japan decreased by 0.1 point, with its six-month rate of change down for the sixth consecutive month. More information on OECD leading indicators can be found at

Trade rises

G7 merchandise exports rose by 2% in volume terms in the first quarter of 2004, while imports into G7 countries increased by 1.3%. This shows a volume increase of 6.9% for exports and 7.5% for imports compared with the first quarter of 2003.

Compared with the preceding quarter, Germany saw its goods exports up by 6.8%, while imports fell by 0.6%. US export and import volumes expanded by 2.3% and 2.9% respectively in the first quarter compared with the previous quarter. While this was slower than previous performances, compared with a year earlier, US merchandise export volumes increased by 9.1%, while imports saw the highest increase in the G7, with 10.4%. Japanese merchandise imports, meanwhile, rose by 8.3% year on year, while exports jumped by 11.3%.

China leads FDI stakes

Foreign direct investment (FDI) into OECD countries fell 28% to US$384 billion in 2003, down from US$535 billion in 2002 and US$662 billion in 2001. The inflow was about a third of the US$1.3 trillion recorded in the peak year 2000. The weaker than expected global economic recovery is one reason for the decline, as are concerns about international security, and a preference on the part of many firms to consolidate acquisitions rather than make new ones.

FDI outflows from the 30 OECD countries held up better last year. For 2003 the figures are estimated at US$576 billion, up from US$567 billion in 2002. However, this is still down on $662 billion in 2001, while in the peak year 2000 FDI outflows came to $1.2 trillion.

The upshot of these trends is that net FDI from OECD countries to the rest of the world showed a substantial increase, from US$31.7 billion in 2002 to US$192 billion for 2003. This is the biggest net flow to developing countries and emerging markets on record. China, which in 2003 attracted U$53 billion from OECD countries and elsewhere, replaced the US as the biggest recipient of foreign direct investment. The size of domestic markets, rather than lower wages and production costs, in emerging economies appears now to be the main attraction for OECD companies.

Safer pensions

If today’s employees are to enjoy adequate retirement pensions in the future, more efficient regulation and management of company pension schemes are needed. At present, many company pension funds are faced with numerous risks, for example, from volatile stock markets or poor management. To reduce the risk of such situations, and in cooperation with the International Network of Pension Regulators and Supervisors, the OECD has published a new Recommendation inviting governments to encourage implementation of the following six Core Principles of Occupational Pension Regulation. They are: conditions for effective regulation and supervision; establishment of pension plans, pension funds, and pension fund managing companies; pension plan liabilities, funding rules, winding up, and insurance; asset management; rights of members and beneficiaries and adequacy of benefits, and supervision.

It also recommends several other steps, for instance, that companies aim to ensure that the assets of their pension funds fully cover potential liabilities, including providing information about pension funding in their financial reporting so that investors are made aware of any shortfalls. In addition, companies should create separate legal entities for their pension funds to help ensure, for example, that if a company goes bankrupt, the pension funds of its employees remain safe. Further, the investment of a company pension fund’s portfolio in the shares of that same company or its parent company should be prohibited, or at the very least, strictly limited.

A full list of the recommendations can be found at

Nuclear choice

Could nuclear energy play a role in the current environment of high oil prices? During a session of the 19th World Energy Congress in Australia, Luis Echávarri, Director-General of the OECD Nuclear Energy Agency (NEA), stated that the debate on nuclear energy “could not be timelier.”

The coming years will be crucial in determining what contribution nuclear energy will make to the world energy supply, he said: “As a large-scale, nearly carbon-free energy source, it is one of the cheapest ways to reduce GHG emissions.” Mr. Echávarri stated that the energy’s availability and affordability, as well as its low carbon emissions, were driving many governments to reconsider nuclear power, which is already making an important contribution to the diversification of energy resources. Nuclear power currently provides 16% of the world electricity supply, reducing global CO2 emissions by nearly 10%.

The NEA consists of 28 OECD member countries. See

No change in jobless rate

The standardised unemployment rate for the OECD area remained at 6.1% in July 2004, a 0.3 percentage point lower than a year earlier. There has been no significant change for the euro area, with unemployment remaining at 9% in July 2004. Joblessness in both Japan and the US, at 4.9% and 5.4% respectively, were slightly lower than a year earlier. Over the past 12 months up to July 2004, only France remained stable at a nonetheless relatively high 9.5%. Both Canada and the UK, with unemployment at 7.2% and 4.7% respectively, showed a slight fall compared with a year earlier, while Germany’s jobless rate rose slightly to 9.9%. Unemployment in Italy, at 8.5% in January 2004, was down 0.4 percentage points compared with January 2003.

©OECD Observer No 244, September 2004 

Economic data

GDP growth: +0.6% Q1 2019 year-on-year
Consumer price inflation: 2.3% May 2019 annual
Trade: +0.4% exp, -1.2% imp, Q1 2019
Unemployment: 5.2% July 2019
Last update: 8 July 2019

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