News brief - March 2010

Now for sustaining growth–; –as China sets the pace; Greening Greece; Soundbites; Economy; Aid shortfall; Chile's new president; Tax watch; Plus ça change...

Now for sustaining growth–
–as China sets the pace
Greening Greece
Soundbites
Economy
Aid shortfall 
Chile's new president   
Tax watch 
Plus ça change...


Now for sustaining growth–

It is time to replace crisis management with actions to strengthen economies for the future by targeting policies in key areas such as jobs, competition and taxation, an OECD report says. Governments have already started removing some of the emergency measures brought in to save the global economy from collapse, Going for Growth says. But they must now ensure that the policies that remain can treat the scars of the crisis and boost growth and living standards for the long term.

Going for Growth finds that prudential banking regulation can be toughened without undermining competition. Governments should resist allowing current financial-sector reform proposals to be watered down, the report says. Unemployment will persist at higher levels than before the crisis, and investments will be riskier as the cost of capital rises, eroding the potential output of OECD economies over the medium term. The report estimates a permanent GDP loss of some 3% on average across these countries. See article on page 7.


–as China sets the pace

China, the world’s second largest economy, is now leading the global recovery, the OECD’s latest Economic Survey of China believes. One reason is massive government stimulus action. China could well overtake the US to become the leading producer of manufactured goods in the next five to seven years.

The report recommends that China boost public spending on social reforms, including unifying the fragmented system of welfare assistance, pensions and healthcare. It also advises opening up banks and financial institutions, and boosting competition and productivity by cutting red tape. It also suggests loosening traditional ties between state-owned enterprises and central authorities, and lowering barriers to foreign direct investment in services.

China’s extra spending reflects strong public finances. Gross government debt amounted to only 21% of GDP in 2008. The stimulus measures are expected to increase this debt ratio by only 3% of GDP in 2010. By contrast, gross public debt in OECD countries is projected to approximate their combined total GDP this year, possibly exceeding it in 2011.


Economic Policy Reforms 2010: Going for Growth is available at www.oecd.org/bookshop, ISBN 978-92-64-07996-0

OEDC Economic Surveys: China 2010 is available at www.oecd.org/bookshop, ISBN 978-92-64-07667-9


Greening Greece

Strengthening environmental protection should be part of government plans to overcome Greece’s economic and financial crisis, OECD Secretary-General Angel Gurría said. Speaking in Athens during the recent release of OECD Environmental Performance Review of Greece, he said that “green policies and economic growth can reinforce each other to create new jobs while promoting cleaner technologies.”

Revenues from green taxes now account for about 2% of GDP in Greece, lower than many other European countries, and the share of taxes in fuel prices is now the lowest among European OECD nations.

The Greek review recommends that producers and users of polluting products pay for disposal and other environmental costs. It also advises removing subsidies and tax exemptions on activities that damage the environment, such as subsidies for irrigation water that encourage the unsustainable use of water resources and tax exemptions for coal-generated power. Given that Greece’s important tourism industry depends on unspoilt scenery and clean beaches, the review also urges Greece to better enforce environmental and land-use regulations.


©Yannis Behrakis/Reuters

See www.oecd.org/environment and www.oecd.org/greece 


Soundbites

Tax evasion…

“…with the help of the OECD, we have made sure that tax evaders have got fewer and fewer places to hide.”

Stephen Timms, the financial secretary to the UK Treasury, on proposals to broaden the crackdown on tax evasion to benefit developing countries, quoted in The Wall Street Journal, 26 January 2010.


… euro worries…

“The EU is now largely frozen in its present shape.”

George Soros writing about the future of the euro, in the Financial Times, 22 February 2010.


… and greed

“It makes me sick of this industry.”

A senior Wall Street executive on the damning, 2,200-page report issued in mid-March on banking powerhouse Lehman Brothers’ path to collapse, quoted in the Financial Times, 13 March 2010.


Economy

Seasonally-adjusted GDP in the OECD area rose by 0.8% in the fourth quarter of 2009, up from 0.6% in the previous quarter. Real GDP grew strongly in the US and Japan, by 1.4% and 1.1%, respectively. GDP growth in France was relatively strong at 0.6%, but remained unchanged from the previous quarter in Germany and declined by 0.2% in Italy. Meanwhile, the UK recorded GDP growth of 0.1% in the fourth quarter after six consecutive quarters of contraction.

Meanwhile, economic activity in the G7 countries is heading for improvement, according to the latest leading indicators, which include order books, building permits and long-term interest rates. Indicators for the OECD area grew by 0.8 point in January and were 11.3 points higher than in January 2009. The increase was spread evenly among the US, which showed an 11 point year-on-year increase, the euro area, with a 12.5 point increase over the same period, and Japan, which recorded a 10.7 point increase year-on-year.



An annual increase of 10.6% in energy prices pushed overall inflation up to 2.1% in the OECD area in the year to January 2010, compared with 1.9% in December 2009. Energy prices in the US rose by 19%. Consumer prices for food in the OECD area decreased by 0.7% in the year to January 2010, compared with a fall of 1% in December.

Unemployment in the OECD area fell slightly to 8.7% in January 2010, reflecting drops of 0.3 percentage point in the US and Japan. The latest figures for the US show that unemployment remained unchanged at 9.7% in February, while it grew in France and Italy. In all OECD countries, unemployment remained higher than a year ago, varying from 0.3 percentage point higher in Australia to 4.4 percentage points in Ireland.


Aid shortfall

Aid to developing countries in 2010 will reach record levels after increasing by 35% since 2004. But it will still be less than the world’s major aid donors promised five years ago at the Gleneagles and Millennium +5 summits, with a shortfall of some $21 billion expected. Africa, in particular, is likely to get only about $12 billion of the $25 billion increase envisaged at Gleneagles.

In 2005, the 15 members of both the EU and the OECD Development Assistance Committee (DAC) committed to reach a minimum official development assistance (ODA) country target of 0.51% of their gross national income in 2010. Some will surpass that goal: these include Sweden and Luxembourg (both at 1% of GNI or more), Denmark, the Netherlands, the UK, Finland, Ireland and Spain. France, Germany and Italy will fall short.

Meanwhile, the US pledged to double its aid to sub-Saharan Africa between 2004 and 2010. Canada aimed to double its 2001 International Assistance Envelope in nominal terms by 2010. Australia and New Zealand also plan higher ODA levels. All four countries appear on track to meet their objectives. In 2008, Japan was still $4 billion short of its undertaking to give $10 billion more for 2005-2009.

Overall, the additional aid planned by 2010 will not prevent the expected $21 billion shortfall between promises and outcomes.


For more, see www.oecd.org/development  


Chile’s new president

Sebastián Piñera was sworn in as president of Chile on 11 March. Chile will become the OECD’s 31st member, and its first in South America, under an accession agreement signed on 11 January in Santiago by OECD Secretary-General Angel Gurría and Chilean Finance Minister Andrés Velasco in the presence of then-President Michelle Bachelet (see www.oecd.org/chile). Mr Gurría extended his congratulations to the new president and assured President Piñera of the OECD’s support both in tackling reconstruction following the recent earthquake in Chile and in relation to longer-term policy challenges.


Sebastian Piñera (©Reuters/STR New)


Tax watch

The Principality of Andorra and the Bahamas recently signed tax information exchange agreements with Denmark, the Faroe Islands, Finland, Greenland, Iceland, Norway and Sweden, bringing to 17 and 18, respectively, their total number of agreements that meet the internationally agreed tax standard. Andorra is the 21st jurisdiction, and the Bahamas the 22nd, to be considered to have substantially implemented the standard since April 2009, when a progress report on implementation was first issued.


Plus ça change...

“In spite of the considerable progress in increasing food production and reducing malnutrition… the Food and Agriculture Organization of the United Nations (FAO) estimates that over 800 million people in the developing world alone are still undernourished. Indeed, the FAO fears that, unless action is taken, many of the current problems of food security will persist and some will become worse.”

“Ensuring Global Food Security”, N° 203, December 1996-January 1997


©OECD Observer No 278 March 2010




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