News brief– March 2005

Growth warning

Mind the gap

After two decades of strong economic growth in the US and relatively weaker performances in most other OECD countries, the gap in economic prosperity has widened dramatically, according to the OECD's chief economist, Jean-Philippe Cotis.

Speaking at the launch of a new report highlighting structural impediments to growth, Mr Cotis described narrowing the gap with top performers as one of the biggest challenges facing many OECD countries today. “Economic catching up, which was widely believed to be automatic, started to stall during the 1980s and degenerated into relative decline during the 1990s,” Mr Cotis said at a news briefing. “Today, GDP per capita in France, Germany or Italy is 30% below US levels and, at current trends, this gap will increase during the next few years.”

The report, Economic Policy Reforms: Going for Growth, is the first in a series intended to identify policy priorities for enhanced economic growth in each of the OECD's 30 member countries. It draws on benchmark indicators in respect of a range of areas shown by OECD analysis to be crucial for economic prosperity, ranging from labour costs and educational attainment to the administrative conditions affecting business start-ups and foreign direct investment.

For more, see www.oecd.org/eco/EconomicPolicyReforms2005.

GDP stabilises–

Growth was stable in the fourth quarter of 2004, with GDP in the OECD area rising by 0.6% in real terms, the same rate as in the previous three-month period. To judge by preliminary estimates, this means the quarterly growth rate has slowed in the three last quarters of 2004, to over half the rate of growth recorded in preceding quarters.

Among the G7 countries, quarterly GDP growth in the fourth quarter of 2004 varied from -0.3% in Italy to 0.9% in the US. There was growth in Canada, France, the UK and the US, but falls in Germany, Italy, and particularly in Japan, where the three last quarters brought slight falls, of 0.2% in the second, 0.3% in the third and 0.1% in the fourth. The euro area recorded weak growth of 0.2% in the third and fourth quarters of 2004, following four quarters of growth ranging between 0.4% and 0.7%.

The US had the highest annual growth rate among the G7 countries with 3.9%, while Germany had the lowest with 0.6%. In most G7 countries, the annual growth rate was less than in the previous quarter. France bucked the trend though; its annual growth accelerated from 2.0% in the third quarter to 2.2% in the fourth.

–with weaker growth ahead?

Latest leading indicators still point to weakening expansion, according to figures out for January 2005. The OECD composite leading indicator, which is designed to provide early signals of trends in economic activity, pointed to improvements in the US, but a weakening performance for the euro area and the UK.

Leading indicators for the OECD area rose by 0.3 point in January. Its six-month rate of change was up for the third month in a row, following nine months of decline. In the US, leading indicators were up by 0.6 point, with its six-month rate of change rising for the third month in a row after having fallen for ten consecutive months.

By contrast, the euro area’s leading indicators fell in January by 0.2 point, while its six-month rate of change has continued to fall since December 2003. The leading indicators for the UK, France, and Italy decreased in January and their six-month rate of change was down for several months in a row. In January, the OECD indicator for Japan was stable and its six-month rate of change was slightly down, having increased for the previous three months.

Jobless rate eases

The jobless rate for the OECD area fell to 6.6% in January 2005, from 6.7% in December and 7% a year earlier. In the euro area, the standardised unemployment rate eased down from 8.9% in January 2004 to 8.8% in January 2005. In Canada, the UK and Italy, the jobless rate, although unchanged from the previous month, declined respectively from 7.3% in January 2004 to 7% a year later, from 4.9% in November 2004 to 4.6% and from 8.4% in September 2004 to 7.8%. The US jobless rate also fell from 5.6% in February 2004 to 5.4% a year later, although it edged up on the previous month. Similarly, in Japan, unemployment fell from 5% in January 2004 to 4.5% in January 2005, while it increased from the previous month. In Germany, joblessness was slightly up, at 9.6% in January 2005. In France, the unemployment rate remained at 9.7%.

Inflation falls

The OECD consumer price index rose by 2.5% in the twelve months to January 2005, down from 2.8% year-on-year in December. This fall is due to slower energy price rises, which decreased to 8% year-on-year in January compared with 10.9% in December 2004 and 12.6% in November. On the other hand, excluding food and energy, the year-onyear increase in consumer prices for the OECD area was nearly unchanged at 2.0% in January 2005, compared with 2.1% during the previous month.

Over the twelve months to January 2005, consumer price growth slowed down to 1.9% in the euro area, 3.2% in the UK, 3% in the US, 2% in Canada, 1.9% in Italy and 1.6% in France and Germany.

Forum countdown

How to unlock the world’s energy potential? How can international outsourcing be best managed? Which way for Europe? How to improve security and make poverty history? These are just some of the main questions that will be discussed at next month’s OECD Forum/Ministerial events in Paris. Over 1,000 participants from government, business and civil society are expected at the public Forum. Sweden’s prime minister, Göran Persson, who will chair the OECD ministerial council on 3-4 May, will also be the lead guest. Energy discussions in conjunction with the International Energy Agency (IEA) ministerial will also feature. For more on the programme, speakers, sponsors and registration, see www.oecd.org/forum2005.

Wage costs alert

The difference between workers’ takehome pay and what it costs to employ them–the so-called tax wedge on earnings–rose in more than half of the OECD's 30 member countries in 2004. More countries showed increases than decreases in the share of wage costs taken by tax and social security contributions, net of child allowances and other benefits, according to the latest edition of the annual report, Taxing Wages.

Some 18 countries showed an increase in the tax wedge for a single person earning the average wage of a production-line employee during 2004, while 11 countries showed a reduction. One, Portugal, was unchanged. For a one-earner married couple with two children earning the full average wage, 17 countries took a higher tax wedge, and 12 had a lower wedge, with only Korea unchanged.

The variations in most cases amounted to only a fraction of a percentage point, but the effect on an OECD-wide basis was an increase in tax wedges of between one-tenth and three-tenths of a percentage point, depending on category. The small overall increase, which follows a recent trend of reductions in tax wedges on earnings, was the result of a range of factors, in particular buoyant wage growth pushing employees into higher tax brackets, a phenomenon known as fiscal drag. The figures should serve as a reminder of the dampening effect taxation could have on incentives for individuals to work and for employers to provide jobs, Taxing Wages warns.

For data, see www.oecd.org/dataoecd/33/59/34548231.pdf and order Taxing Wages 2003/2004 at www.oecdbookshop.org.

Plus ça change

“Almost every modern language has a word for “latchkey” children–those who are left on their own after school. How to provide care for such children, what to do when a school-age child is suddenly taken sick or when a baby-sitter does not appear–such problems are not necessarily peculiar to women who work, but do affect this group of jobholders with particular force.”

From “In job and family: Measures to help women fulfil a dual role”, OECD Observer No 16, June 1965.

©OECD Observer No 248, March 2005




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