Hopes for a faster-than-expected global economic recovery have received a fillip from recent positive data on leading indicators. OECD composite leading indicators, which reflect the likes of order books, building permits, sentiment surveys and long-term interest rates in a bid to spot turning points six months ahead in business cycles, point to clear signals of a recovery in all major seven economies, particularly in France and Italy, as well as in China, India and Russia. The indicator for the OECD area rose by 1.5 points in July 2009, though it was 1.9 points lower than in July 2008. For the US it increased by 1.6 points in July, but stood 4.3 points lower than a year earlier. The leading indicator for Japan was up 1.4 points on the previous month, but down 6.6 points on a year earlier. The euro area saw its indicator rise both on the previous month, by 1.9 points, and on a year earlier, by 1.4 points.
OECD leading indicators have a good track record, and forewarned of the weakening trend in the run-up to the crisis as long ago as August 2007 (see OECD Observer No 263, October 2007).
Despite the brighter outlook, experts still urge caution. OECD countries have witnessed record drops in real GDP in 2009 and the latest update on the economic outlook on 3 September warns of continuing headwinds, emphasising that growth would be weak in 2010. Indeed, for OECD Secretary-General Angel Gurría the crisis was not yet over, warning ahead of the G20 summit that "we cannot claim victory simply because we see indicators of recovery picking up." The next OECD Economic Outlook will be released in late November.
The OECD is backing efforts to find new measures of economic performance and social progress. In remarks prepared for a September meeting on the findings of the Commission on the Measurement of Economic Performance and Social Progress, set up by French President Nicolas Sarkozy, Secretary-General Angel Gurría welcomed moves away from indicators based on production to ones based on people's well-being. The French president's commission, which includes five Nobel prize winning economists-Joseph Stiglitz, Amartya Sen, Kenneth Arrow, James Heckman and Daniel Kahneman-proposes new indicators to measure subjective aspects of social progress such as freedom, security and contentment as well as objective features including economic and ecological resources. The OECD is ready to help lead international co-operation on harmonising concepts and methodologies, Mr Gurría noted. The OECD World Forum on 27-30 October 2009 will provide a major international opportunity to advance the Commission's recommendations.
See also "Progress, what progress?" by Joseph Stiglitz, in OECD Observer No 272, April 2009.
"The fundamental question is, how much sovereignty are you willing to give up for the global economic good? The answer, right now, is zero."
Raghuram Rajan, a former IMF chief economist, in The Economist print edition, 1 October 2009.
"There is the risk of enormous knock-on effects on trade and food supply, with the food price volatility of the last year looking like a vicar's tea party."
Andrew Sims, head of policy at the New Economics Foundation think tank, quoted in The Observer newspaper, 4 October 2009.
"Out of 1,000 euros, it would only generate 5 cents. But applied to a world scale, it could contribute some 20-30 billion euros, depending on the type of transaction."
French foreign minister, Bernard Kouchner, on how taxing international financial transactions (popularly known as a Tobin tax) might work, quoted in Les Echos newspaper, 17 September 2009.
Strengthening innovation, deepening the single market and moving to a low carbon economy are among the areas where reform needs to be accelerated to strengthen long-term growth in the EU, the latest economic survey of the European Union, released this September, says.
The OECD, World Trade Organization and the UN's Conference of Trade and Development have called on the leaders of the G20 countries to resist protectionism in trade and investment.
New sources of jobs and growth needed for a sustained global recovery will only emerge if the right structural policies are adopted by the world's leading global economies, OECD Secretary-General Angel Gurría said at the G20 summit in Pittsburgh in September. Welcoming the adoption of the G20's Framework for Strong, Sustainable and Balanced Growth, Mr Gurría cited the benefits to be derived from reforming education, and labour and product markets. He called for the need to agree on common targets in areas such as innovation and green growth, which "could become the overarching umbrella for the G20 Framework's structural agenda".
Several OECD work areas were reflected in the G20 communiqué, including tax (next story) climate change, employment, trade and the OECD anti-bribery convention.
"What has happened is nothing less than a revolution." This is how OECD Secretary- General Angel Gurría summed up progress in the fight against international tax evasion in recent months. In remarks to G20 leaders in Pittsburgh in September, Mr Gurría noted that since the London summit in April there had been unprecedented action to implement the OECD-initiated and now globally-endorsed standards of transparency and exchange of information in tax matters: over 90 tax information exchange agreements have been signed and over 60 tax treaties negotiated or renegotiated to incorporate the standards. All major on and offshore centres have now endorsed the standards.
Leaders at the G20 in Pittsburgh confirmed their commitment "to maintain the momentum in dealing with tax havens" and welcomed the expansion of the Global Forum on Transparency and Exchange of Information at the OECD, which would now include developing countries. The changes to the forum agreed in Mexico earlier in September also involve putting in place a transparent governance and financing structure, and setting up a peer-review process. A proposal for a multilateral tax information exchange agreement was also endorsed. At Pittsburgh, G20 leaders said they were "ready to use countermeasures against tax havens from March 2010" so that countries can enforce their laws and protect their tax bases. For more, see www.g20.org.
Meanwhile, the OECD and the Council of Europe have agreed to improve international cooperation to combat tax evasion. New rules are aimed to remove obstacles to effective co-operation and exchange of information, especially those related to bank secrecy legislation.
Separately, Switzerland has signed a protocol to its tax treaty with the US that incorporates the internationally agreed tax information standard. This is the 11th such exchangeof- information agreement signed by Switzerland. The British Virgin Islands and Cayman Islands have also implemented the internationally agreed tax standard, signing tax information-exchange agreements with New Zealand. And Luxembourg also made progress in by signing a protocol to its double taxation convention with Norway over the summer.
Inflation in the OECD area eased further as consumer prices fell by 0.3% in the year to August 2009, compared with a fall of 0.6% in the year to July. Consumer prices for energy were down by 14.4%, following a fall of 18.1% in July. For food, consumer prices edged up by 0.1%, instead of 0.6%.
Unemployment for the OECD area was 8.5% in July 2009. This was 2.4 percentage points higher than a year earlier. In the euro area, the unemployment rate was 9.5% in July 2009. In the US, it stood at 9.7%, and in Japan, 5.7%.
Merchandise trade showed signs of bottoming in the summer, but seasonally-adjusted monthly G7 totals for the 13 months to July 2009 also show the extent of the trade slump. Latest trends, while hopeful, do not confirm a demand recovery, as countries have been rebuilding inventories.
"(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..."
"Seeking a solution to US manpower problems" in No 9, April 1964
©OECD Observer No. 274, October 2009