News brief– July 2005

OECD Observer

London bombing

The secretary-general of the OECD, Donald J. Johnston, and the staff of the organisation express their solidarity and sympathy with the people of London in the face of the 7 July bomb attacks and the loss of life, injury and damage that they have caused.

Economy signals on slow–

If the latest OECD composite leading indicators are anything to go by, a general slowdown in activity lies ahead. The figures for May (published in early July) show a weakening performance in all G7 countries, except the US and Canada. These results confirm a trend already highlighted in earlier editions (see also page 7).

The OECD leading indicator, which incorporates a wide range of indicators such as building permits, order flows, long-term interest rates and sentiment surveys, is designed to deliver early signals of peaks and troughs in economic activity. The latest indicators show continuing declines in the six-month rate of change for the euro area, Japan and the UK. However, the CLI for the US rose by 0.1 point in May.

For more, see

–though GDP edges up

Gross domestic product (GDP) in the OECD area rose by 0.7% in the first quarter of 2005. This rise symbolically matched the average OECD quarterly rate over the last nine years, and it was also close to the GDP increases registered for the last three quarters of 2004. Nevertheless, it was weaker than the year earlier score. Moreover, the average belies mixed performances. Italy recorded a fall of 0.5% in real terms, its second in a row, but Japan’s quarterly GDP rose by 1.3%, after declines most of last year and zero growth in the last quarter. In the US, GDP grew by 0.9%.


Smart money

Citizens in OECD countries need a better understanding of how to deal with financial markets, because of a combination of sophisticated products and growing individual responsibility for financial decisions about housing, education, health and pensions. Governments have a responsibility to help them do this. According to Lorenzo Bini Smaghi, who chairs the OECD’s committee on financial markets, without improved financial awareness, “we may face serious economic and social problems in the near future.”

As part of a drive for better financial education, OECD governments have published a set of principles and good practices to encourage financial services firms, consumer groups and citizen advice bureaux, as well as individuals, to do more to address this area. “Financial education should start at school”, the recommendations suggest, and they call on governments and stakeholders to “promote unbiased, fair and co-ordinated financial education.” This “should be clearly distinguished from commercial advice.” Financial institutions should be encouraged to check that clients read and understand information, the recommendation says, especially when related to longterm commitments with significant financial consequences, while “small print and abstruse documentation should be discouraged”.

A full text on the new financial education recommendations, along with a fact sheet, can be found at

Fresh start

Secretary-General Donald J. Johnston (left) helps pour cement to lay the foundation of the future conference centre at the OECD’s headquarters in Paris, 6 July 2005. The new centre will be part of the long-awaited renewal project that started in 2004. The project will also include renovation of the OECD’s château building and restructuring of the main office block. The conference centre is expected to be open in 2007, and the offices in 2009.

©David Sterboul/OECD

See Headquarters Site Redevelopment Project at

Facing the music

Online music sales currently represent only around 1-2% of total industry revenues, but the figure is likely to rise by 5-10% over the next three years. As a result, the industry must continue to reconsider the way it does business, and governments will have to think hard about regulatory structures. These conclusions arise from a new report on the digital music industry that forms part of a wider OECD project on digital broadband content.

Three main themes–standards and technical interoperability, protection of intellectual property rights, and digital rights management (DRM)–are central to policy and progress in this area, the report suggests. Interoperability encourages competition, as well as initiative by small and innovative players. Government action is required to combat piracy and reconcile different jurisdictional approaches to copyright liability. DRMs may be essential to new content business models, yet they have often failed to prevent unauthorised use.

Around a third of Internet users in OECD countries have downloaded files from networks. Unauthorised copying is rife. A causal connection is difficult to prove, but music industry revenues fell 20% between 1999 and 2003, notes the report. Apart from downloading, some of the fall may simply reflect competition from other entertainment. Adding to the challenge is a move towards an unbundling of music tracks that may benefit the consumer, but make it more difficult for artists to present their less commercial offerings.


Insuring against terror

Greater government intervention may be needed to help provide insurance against terrorism at affordable prices, particularly in situations where markets lack capacity. This is particularly the case since, according to some estimates, losses resulting from a single terrorist attack could be as high as US$250 billion. At the same time terrorism modelling has not yet become sufficiently reliable to predict the likelihood of future attacks and financial markets have so far shown little appetite for terrorism risk.

The 7 July terrorist attacks on London add poignancy to these conclusions distilled from Terrorism Risk Insurance in OECD Countries, a new OECD report. Conditions have improved on terrorism insurance markets since 9/11, the report notes, but shortfalls in coverage remain, and private markets are not yet fully able to cover the extremely large losses that could result from attacks. This situation is aggravated by the unpredictability of terrorist incidents.

Terrorism insurance take-up rates are often low. For instance, at the end of 2004 only about half of US companies were insured, and less than 3% of eligible firms had taken out cover under Germany’s special compensation scheme.

Among the solutions suggested by the report are changes to taxation and accounting to reduce the cost to insurers of building up reserves. And governments need to work with the insurance industry to devise sustainable cover for risks that are typically excluded, such as those of chemical, biological, radiological and nuclear terrorism.

Plus ça change…

This is the 250th edition of the OECD Observer.Have the policy challenges really changed over the last four decades? Take this extract on employment, from Issue No. 5, August 1963. “Thanks to an increasing life span, the number of older workers in the employable population has steadily increased between 1920 and 1960…At the same time, looking over his shoulder, the older worker sees a demographic phenomenon known as the “youth bulge” moving into the labour market.” (From “Employment for the ageing worker: A serious problem now–critical later”, available on request at

©OECD Observer No 250, July 2005

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