Crisis bites deeper
Tax information-exchange agreements
Freedom of Investment initiative
Fighting bid-rigging in public procurement
Plus ça change…
Crisis bites deeper
The world economy is in the deepest and most synchronised recession in our lifetimes but a depression is being avoided. This was a key message in the latest update on the OECD Economic Outlook. In a press briefing launching the update on 31 March, OECD's outgoing chief economist, Klaus Schmidt-Hebbel, said that, while the OECD figures were gloomier than those predicted by other organisations, the efforts undertaken to stabilise the world economy would gain momentum by 2010. He rejected any comparison of the current "great recession" to the 1930s, when contractionary monetary policy, excessive protectionism, currency devaluations and other policy blunders tipped the world economy into the Great Depression.
But even if policymakers were getting it right this time, the "risks remain firmly tilted to the downside", he warned.
The recession will hit all 30 members of the OECD, an unprecedented number. GDP will plummet by 4.3% in the OECD area in 2009, and world economic activity by 2.7%. International trade will fall by some 13%, and by end-2010 unemployment in many countries will reach double figures, aggravating an unfolding social crisis. The crisis will affect non-OECD countries too. A recovery of just 1.5% is expected for 2010. Discretionary fiscal stimulus packages must be made to work to tackle the crisis, the report says, the size depending on the country and situation. The US, for example, has fewer automatic stabilisers than Europe, and may need a bigger stimulus package than the latter. On the banking side, emergency measures such as deposit and debt guarantees are vital, but to restore the credit supply and consumer trust, governments must demand greater transparency about losses so as to distinguish viable institutions from those that are not, and recapitalise or even nationalise insolvent ones, the report says.
The report advises governments to focus on eight policy areas, the most urgent of which is the adoption of measures to stabilise systemically important institutions, reduce market uncertainty and prod banks into lending again. Another is to increase the competitiveness of domestic product and labour markets, not only to raise long-term growth, but to fortify themselves against future shocks such as we are witnessing today. LT
The OECD Economic Outlook is issued four times a year, with main reports around December and June, and "interim" updates in March and September.
The OECD composite leading indicators (CLIs) for January 2009 continued to point to a weakening outlook for all the major seven economies, with the OECD total falling again to a new low and little clear indication of stabilisation any time soon. The outlook has also continued to deteriorate in the major non-OECD member economies, particularly Brazil, which now joins China, India and Russia in the group of countries going through a strong slowdown.
Consumer price inflation in the OECD area remained at 1.3% in the year to February 2009. Month-onmonth, prices rose by 0.4% in February, the first tangible positive increase since July 2008. Consumer prices for energy were down by 8.6% in the year to February 2009, following a fall of 9.6% in January. Consumer prices for food were up by 4.8% in the year to February compared with 5.4% in January. Excluding food and energy, the rise in consumer prices at 1.9% in the year to February 2009 was unchanged from the January 2009 position. For more on these and other economic stories, go to www.oecd.org/statistics
"Governments need to take quick and decisive action to avoid the financial crisis becoming a fully-blown social crisis with scarring effects on vulnerable workers and low-income households," OECD Secretary-General Angel Gurría told G8 Labour and Employment Ministers in Italy in late March. Presenting OECD analysis of the impact of the crisis on employment, he said the short-term labour market outlook is "gloomy". The OECD forecasts unemployment rates approaching 10% in the OECD area by 2010, compared with the recent low of 5.6% in 2007.
This implies that the crisis could swell the numbers of unemployed in the OECD by about 25 million, by far the largest and most rapid increase in OECD unemployment in modern times. Mr Gurría noted that most of the fiscal packages to support the economy that G8 and other countries have introduced, or are planning to introduce, include extra funds for labour market and social policy, but described the additional funds as rather limited and possibly "a missed opportunity". For more, see www.oecd.org/employment
Teenagers are mostly aware of environmental issues but often know little about their causes, raising questions about how well societies will be equipped to tackle such challenges in the future, according to a forthcoming OECD publication. Data in Green at Fifteen?, the latest OECD report on findings from its PISA study, shows that more than 90% of an extensive sample of 15-year-old school students were familiar with issues relating to air pollution, nuclear waste and water shortages. But almost half of them were unable to identify a single source of acid rain, such as factory or car emissions. The best score came from Finland, where three quarters were able to give an answer to that question. In Turkey, by contrast, only one in four students could respond. For more, see www.oecd.org/pisa
In recent weeks, several countries and territories committed themselves to tax information-exchange agreements: the Cayman Islands signed bilateral information-exchange agreements with seven Nordic economies-Denmark, the Faroe Islands, Finland, Greenland, Iceland, Norway and Sweden; and both the Republic of San Marino and Monaco have announced their willingness to exchange tax information in accordance with the OECD standard. The internationally agreed standard, which was developed by the OECD in co-operation with non-OECD countries, was endorsed by G20 finance ministers in 2004 and by the UN Committee of Experts on International Cooperation in Tax Matters in 2008. It requires an exchange of information, on request, in all tax matters, and provides extensive safeguards to protect the confidentiality of the information exchanged. Some 40 jurisdictions, including, most recently, Jersey, the Isle of Man and Guernsey, have substantially implemented the standard. See www.oecd.org/tax
Countries participating in OECD's Freedom of Investment initiative, representing fourfifths of the world economy, have pledged to resist discriminatory policies and new forms of protectionism towards investment. See www.oecd.org/investment
The OECD Competition Committee adopted new Guidelines for Fighting Bid Rigging in Public Procurement in February. By drawing on the experience of more than 30 jurisdictions, the guidelines provide the most comprehensive strategy available today for designing tenders to hinder bid-rigging conspiracies and for uncovering existing conspiracies. They can be applied across national and local-level government and are simple enough for use by officials with no specialised training in economics or competition policy. For more details, see www.oecd.org/daf
There was good news for development aid when 2008 figures showed total net official development assistance (ODA) from members of the OECD's Development Assistance Committee rose by 10.2% in real terms to $119.8 billion, a record (see page 30). It represents 0.3% of the donors' combined gross national income. Countries are being urged to uphold foreign aid commitments, despite the crisis. See www.oecd.org/development
On protectionism... "Everyone who's an international economist is worried about this sort of thing [protectionism]. But everyone who's a politician knows that people are going to have to take care of their own in a time of crisis. That doesn't mean there isn't going to be plenty of trade and plenty of international economic co-operation. But when you have a crisis like this people have a tendency to look first to their own constituents." Former US assistant secretary of state, James Rubin, quoted on BBC.co.uk, 3 March 2009.
See http://news.bbc.co.uk/2/hi/uk_news/ politics/7918345.stm
...inflation... "The unprecedented explosion of the US fiscal deficit raises the spectre of high future inflation." Martin Feldstein, Harvard professor of economics, writing in Financial Times, 20 April 2009.
..and beleaguered banks "I put my card in to get out cash. The machine said: ‘Insufficient funds'. I couldn't tell whether they meant me, or them." Comedian on Irish radio, February 2009. Variants on Internet.
"(Unemployment) has been a matter of great concern to the US authorities not only because of the human problem it presents but because it implies the waste of one of the most important economic resources...there may be a potential loss to gross national product of some $30 to $40 billion a year." "Seeking a solution to US manpower problems" in No. 9, April 1964.
©OECD Observer No. 272, April 2009