Browse by: "2018"

The current expansion in the United States is one of the longest on record. Economic growth since the financial crisis has also been amongst the strongest in the OECD. Robust job growth has helped bring people into employment and reduce the unemployment rate. Partly as a result, material wellbeing is high and Americans are doing well on average in comparison with residents of other OECD counties. The near-term outlook for growth is strong, partly as a result of substantial fiscal stimulus. In the longer run, improving the business environment would help sustain growth, by reanimating firm creation and productivity growth. Labour force participation rates of prime age workers are relativley low and have only recently begun to recover from the decline after the crisis. Job losses have become more persistent in areas hit by adverse structural shocks, contributing to the decline in participation. In addition, changing jobs has become more difficult over time, which is a concern with the potential for automation and globalisation to disrupt local labour markets. Labour market participation is also adversely affected by opioid addiction, which also costs many lives, harms livelihoods and entails significant public healthcare spending.

SPECIAL FEATURES: LABOUR-MARKET DISRUPTIONS FROM TRADE AND AUTOMATION; OPIOIDS AND EMPLOYMENT

The Turkish economy bounced back strongly after the failed coup in July 2016 but going forward growth is set to be closer to potential. The exchange rate has depreciated considerably, inflation is high and so is the current account deficit. Growth has been overly dependent on consumption and external savings and should be rebalanced by improving export performance. There is ample room to improve the quality of governance, including with respect to fiscal, monetary and macroprudential policy. Progress in these areas would help bring about disinflation and reduce risk premia, thus lowering financing costs. Coupled with increased foreign direct investment, this would contribute to improve the quality of business capital formation, and to generate high-quality sustainable jobs for the rapidly expanding labour force.

SPECIAL FEATURE: UPGRADING BUSINESS INVESTMENT

Tunisia has experienced strong economic and social progress in recent decades and, more recently, a successful democratic transition. The convergence process has slowed down, however, due to the low level of investment since the early 2000s, while regional and labour market inequalities have persisted. Since 2011, the external and public debt-to-GDP ratios have risen sharply. To put them back on a sustainable path, structural reforms that can sustain growth and competitiveness are needed. In order to boost business investment, regulatory and administrative constraints - including the many licences, permissions to operate and administrative authorisations, pricing constraints and restrictions on competition in certain sectors - need to be reduced. Strengthening Tunisia's competitiveness in global value chains through trade facilitation measures and greater efficiency of logistics services is also key. Encouraging women's participation in the labour market, adapting training to the needs of employers and reducing social security contributions on payroll will help create quality jobs. A new regional development policy, emphasising the specific assets of each region around the development of urban centres, is needed.

SPECIAL FEATURES: INVESTMENT; EMPLOYMENT AND REGIONAL DEVELOPMENT

The Spanish economy continues its strong growth, thanks to past structural reforms, robust employment growth and accommodative macroeconomic policies. However, the legacy of the crisis has not yet been fully overcome and imbalances remain. The robust recovery provides an opportunity to keep reducing macroeconomic and financial vulnerabilities, such as high public and external debt. The resilience of public finances should be increased to address medium-term challenges, including spending pressures from demographic changes. Income inequality is high and displays regional differences in Spain. More effective use of taxes and transfers, bringing people back into employment and reducing regional disparities would make growth more inclusive. Improving productivity growth, which remains subdued, will require firms to be more exposed to competition and innovation. Policies to improve education and skills will deliver results not only in terms of productivity growth, but also better employment prospects and wages. Spain is a highly decentralised country, making the effective implementation of national reforms dependent on regional policies. More effective coordination and cooperation across different levels of government are needed to improve the effectiveness of policies.

SPECIAL FEATURE: REDUCING REGIONAL DISPARITIES

The Polish economy is expanding rapidly and living standards continue to rise, catching up with those in other OECD countries. To sustain this trend Poland needs to invest further in skills and infrastructure and develop its capacity to innovate. Indicators of scientific research quality are below those in the leading OECD countries, and business R&D investment remains weak despite rapid recent growth. Vocational training suffers from limited business engagement, and adult learning is not well developed, inhibiting citizens’ ability to acquire stronger basic and digital skills. This is holding back the economy’s capacity to innovate and the ability of Poland’s plentiful small enterprises to adopt new technologies, modernise their organisation and production procedures, and thus improve their productivity and grow. The government plans a higher education reform and the development of a skills strategy to address those issues. To help Poland confront rapid ageing, policies need to bolster seniors' and female employment, while making Poland more attractive to domestic and foreign workers alike. Poland also needs a strategy how to ensure continued financing for investment in infrastructure, skills and innovation from domestic sources should the availability of EU Structural Funds decline in the next EU budgetary cycle.

SPECIAL FEATURES: INNOVATION; FINANCING INNOVATIVE BUSINESS INVESTMENT

The Netherlands is experiencing strong growth and tight labour markets, with favourable economic prospects and sound public finances. But there are downward financial risks to the economic outlook and the country is exposed to Brexit. Looking forward, reforms are needed to move toward a more inclusive society in the context where digitalisation and globalisation will alter the functioning of the economy. The tax system needs to be streamlined to support growth, without increasing inequality. Labour-market inclusiveness could also be enhanced along several dimensions. A combination of tax and regulatory reforms would ensure a better job quality for the self-employed and workers on temporary contracts without discouraging these types of work. There is also scope to reduce the large gender gap in part time work and enhance skills of vulnerable workers. Finally, adressing population ageing will also require reforms to occupational pension plans and ensuring an adequate supply fo health professionals.

SPECIAL FEATURE: LABOUR MARKET INCLUSIVENESS

Since renewed independence in 1991 and transition from a centrally planned to a market economy, Lithuania has substantially raised well-being of its citizens. Thanks to a market-friendly environment the country grew faster than most OECD countries over the past ten years. The financial system is resilient, and fiscal positions stabilised after a long period of deficits and rising debt. Yet productivity has remained subdued due to stringent labour market regulations, informality and skills mismatch. Wage and income inequality are high, fuelling emigration. The population is ageing fast and declining, particularly because of emigration, putting pressure on the pension system. A wide-reaching labour market, unemployment benefits and pension reform entitled “new social model” implemented in 2017 is expected to reinvigorate inclusive growth, strengthen the social safety net and underpin the sustainability of public finances. However, catch-up and more inclusive growth will require raising productivity that still remains well below the OECD average, and has slowed down recently. And rapid ageing and high emigration shrink the labour force by 1% every year, requiring a comprehensive approach to address the economic consequences.

SPECIAL FEATURES: PRODUCTIVITY AND INCLUSIVENESS; AGEING TOGETHER

Economic growth picked up in 2017, but reforms are needed to sustain Korea's convergence toward the income levels in the most advanced countries. Its labour productivity is only half of that in the top half of OECD countries, reflecting problems in the service sector. In addition, productivity in small and medium-sized enterprises (SMEs) in manufacturing is only one-third of that in large firms. The segmentation of the labour market between regular and non-regular workers has resulted in one of the highest levels of wage inequality among OECD countries. The employment rate of women is relatively low and the gender wage gap is the largest in the OECD. Korea faces the most rapid population ageing in the OECD area, which is projected to drive up government social spending from 10% of GDP to 26% by 2060. This Economic Survey of Korea assesses the country's recent macroeconomic performance and prospects. It also offers recommendations on how to achieve the government's objective of a paradigm shift from growth led by business groups (chaebols) to a greater role for SMEs and innovative start-ups through wide-ranging reforms to enhance competition, improve corporate governance, promote entrepreneurship and upgrade SME policies. This should be accompanied by labour market reforms to increase employment of women, youth and older persons and to break down dualism to achieve more inclusive growth.

SPECIAL FEATURES: REFORMING THE LARGE BUSINESS GROUPS; ENHANCING DYNAMISM IN SMES

Israel’s economy continues to register remarkable macroeconomic and fiscal performance. Growth is strong and unemployment is low.  The external surplus is comfortable, and the public debt-to-GDP ratio, already well below the OECD average, is still falling. However, Israeli society remains marked by weak social cohesion and significant disparities, which penalise parts of the population and threaten the longer-term sustainability of these good results. Despite better employment outcomes among Israeli-Arabs and the Haredim, workers from these communities are often trapped in low-paid jobs due to their weak skill sets, implying persistent poverty and weak aggregate productivity. Moreover, low social transfers imply that the often large families in these communities face deprivation that contributes to child poverty. High cost of living and house prices also weigh on the social situation and well-being, and public transport deficiencies are detrimental to work-life balance and cause urban congestion and poor air quality. The authorities have continued their reform process over the last few years to address these issues. Making growth stronger, more inclusive and more sustainable will require further action and more public investment in education to improve the skills of Israeli-Arabs and Haredim together with additional product market reforms and better transport infrastructure.  

SPECIAL FEATURES: EDUCATION AND SKILLS; INFRASTRUCTURE

Living standards are high in Ireland, with recent improvements underpinned by the strongest post-crisis output recovery in the OECD. The economy is projected to continue expanding over the next two years, albeit at a more sustainable pace and amid heightened economic uncertainty primarily relating to the future trading relationship with the United Kingdom. Greater uncertainty makes it vital to further improve the fiscal position, which could be partly achieved by broadening the tax base and raising the property tax yield. Vulnerabilities in the financial sector also need to be further addressed by introducing stronger incentives for banks to reduce the high level of non-performing loans that remain on their balance sheets. The future resilience of the Irish economy hinges on unblocking the productivity potential of local enterprises and enhancing productivity spillovers; most Irish firms have experienced declining productivity over the past decade, causing the large productivity gap between foreign-owned and local enterprises to widen. Given strong international competition to attract foreign-owned firms, the economy should not be overly reliant on the performance of such entities. Improving the productivity performance of the local business sector can be achieved by reducing high regulatory barriers to entrepreneurship, further improving Irish infrastructure and raising the absorptive capacity of local businesses. Other significant challenges for wellbeing and inclusiveness exist in the areas of housing, health and getting people into work. To address these challenges, stringent housing regulations that are constraining dwelling supply should be rationalised, universal healthcare coverage provided and some social benefits withdrawn more gradually as labour earnings rise.

SPECIAL FEATURE: RAISING PRODUCTIVITY

Indonesia's steady economic growth, with help from government policies, has raised incomes and lowered poverty rates to record lows. Prudent macroeconomic policies have contributed to economic stability, muted inflation and limited government debt. However, government infrastructure investment and social spending is constrained by low revenues. There is ample scope to grow revenues by strengthening the tax administration to raise compliance and broadening tax bases. Indonesia has a youthful population that will boost growth in coming years. Reaping the benefits requires shifting the employment mix towards better jobs in the formal sector. That, in turn, means tackling informality and raising skill levels, including through further structural reforms and better quality education. Indonesia's wealth of natural resources and rich cultural diversity offer many opportunities to grow tourism across the country. The recent surge in arrivals is generating export revenue but it is also increasing pressure on the environment. Developing tourism more sustainably will involve investing in skills and supporting infrastructure accompanied by local stakeholder involvement.

SPECIAL FEATURES: TAX POLICY; SUSTAINABLE TOURISM

Greece is on track to recover from a deep depression. Reforms have gathered pace and fiscal consolidation has strengthened credibility, lowering uncertainty. Exports have led the expansion and labour market reforms have improved competitiveness, supporting employment growth, but wages and productivity remain low. Real investment has yet to recover due to tight financial conditions and structural impediments. The tax collection system is improving, but the tax system still relies on high rates and narrow bases, hampering growth and creating inequities. The public debt remains high and is a source of vulnerabilities. Reducing the debt ratio will hinge on raising long-term growth, maintaining prudent fiscal policy and additional debt restructuring as needed. Improving processes to negotiate employment agreements, better matching workers’ skills with workplaces’ needs, strengthening firms’ incentives to innovate and train workers in addition to continuing social protection reforms will raise employment and wages, and reduce poverty. The government has improved important areas of the investment climate, but more is required to fully implement the product market reforms already passed, improve regulatory quality and transparency, fight corruption and address informality. Reducing non-performing loans and phasing out capital controls while preserving financial stability will improve financing conditions and boost confidence.

SPECIAL FEATURES: BOOSTING INVESTMENT; SUPPORTING INCOMES THROUGH EMPLOYMENT AND SOCIAL PROTECTION

Germany has been enjoying strong economic performance. Exports have benefited from an innovative manufacturing sector. Record-low unemployment has underpinned private household demand. On aggregate, the population enjoys a high standard of living. The share of population in relative income poverty is lower than in most OECD countries. The main concern for policy makers is to make sure strong social and economic outcomes are sustained in the future and that efforts are stepped up to reduce inequality of market incomes and poverty risk. New technologies must be exploited more extensively, with benefits for the whole society, as well as for strong growth consistent with the low-carbon transition. Accelerated technological change requires workers to be ready to adapt throughout their life time. Better use of workers’ skills, especially among women, can also boost productivity. Enhancing education opportunities for people with weak socio-economic background brings better access to economic opportunities to all.

SPECIAL FEATURES: BOOSTING PRODUCTIVITY AND PREPARING FOR THE FUTURE OF WORK; IMPROVING SKILLS AND THEIR USE

The Finnish economy is rebounding strongly after almost a decade of lacklustre economic performance. The revival in global growth and investment, coupled with competitiveness gains, is boosting exports. Consumption remains healthy despite slow income growth and both business and residential investment are buoyant. Nevertheless, a rapidly ageing population limits the long-term growth potential and weighs on public finances. Increased mobility of tax bases related to globalisation creates further challenges in raising revenue, while the tax system should also support growth, competitiveness and employment, and maintain its ability to contain income inequality. To ensure steady and inclusive growth, Finland’s employment rate, which is markedly lower than in the other Nordic countries, needs to be lifted. The welfare system has to generate strong work incentives, protect the vulnerable and adapt to a changing world of work. This Survey assesses the respective merits of introducing a universal basic income and streamlining the social benefit system in moving towards these objectives.

SPECIAL FEATURES: TAXATION; WELFARE

After years of crisis, the European economy is expanding robustly, and GDP growth is projected to remain strong in 2018 and 2019. With an expansion underway, attention needs to shift to Europe’s long-term challenges. Wellbeing disparities, the UK vote to exit the European Union, low potential growth, an ageing population and continuous technological developments are all important challenges. To further strengthen the confidence of all its citizens, the European Union needs to focus on policies that support a stronger and more inclusive growth. A reformed EU budget could enhance growth and make it more inclusive by stepping up investment in R&D, better targeted cohesion and agriculture spending to more effectively address regional divides, and increased funding to support less qualified youth. To spur long term growth and sustained improvements in living standards, the EU needs to revive the single market project, by removing remaining barriers in services, energy, digital and transport. Deepening the single market and faster adoption of digital technologies will create new jobs but put at risk others. The EU should better help lagging regions catch up and support those who lose out from globalisation and are displaced by technological change.

SPECIAL FEATURE: STRONGER AND MORE INTEGRATED EUROPE

The euro area economy is growing robustly, and GDP growth is projected to remain strong in 2018 and 2019. These improved economic conditions should facilitate further reforms needed to enhance euro area resilience to downturns and ensure its long-term sustainability. Rapid resolution of remaining non-performing loans would facilitate new bank lending and better transmission of monetary policy. Governments should use the recovery to improve fiscal positions and gradually reduce high debt, which would reduce the risk of pro-cyclical fiscal stances in bad times. Simplifying the fiscal rules, while keeping the necessary flexibility, would make the rules more operational. Banking union remains unfinished and futher progress is key to achieve greater private risk sharing. To further loosen the potentially harmful links between banks and their sovereigns, a combination of policies incentivising banks to diversify their holdings of sovereign debt and the introduction of a European safe asset should be considered in parallel. A fiscal stabilisation capacity at the euro area level, such as an unemployment benefits re-insurance scheme, could help absorb large negative country-specific and euro area shocks and complement national fiscal policies. More integrated capital markets would deepen private risk sharing through more diversified financing and greater cross-border investment.

SPECIAL FEATURE: IMPROVING EURO AREA RESILIENCE

The economy of the Czech Republic is thriving, growth is high, unemployment rate is low and fiscal stance is positive. Strong demand from the external sector and household consumption boosted by high increases in wages are driving growth. However, labour productivity remains low contributing to maintaining low wages. Deeper structural reforms and investment in skilling, education, R&D and innovation are needed to support further convergence towards OECD standards.

SPECIAL FEATURE:  HEALTH SYSTEM

Costa Rica has achieved strong levels of well-being. However, many institutional obstacles are hampering more robust growth and the spreading of its gains more widely. Setting in motion a “virtuous cycle” of inclusive growth will require reforms across several policy areas that present win-win opportunities in terms of equity and productivity improvements. Rebalancing spending towards early childhood and secondary education would improve outcomes and equity and also help increasing the low level of participation of women in the labour market. Costa Rica should move from the current emphasis on education spending towards outcome policy targets, supported by performance indicators. Policies to reduce labour market informality should continue, including greater enforcement of obligations to pay social security contributions and a gradual move to a smaller number of minimum wages. Eliminating unjustified exemptions from competition would boost productivity growth. Fiscal imbalances remain the major threat to growth and living standards in the medium term. A comprehensive fiscal reform package is needed to bring to a halt the fast rising debt-to-GDP ratio, including measures to increase tax revenues and curb spending, strengthen the budgetary framework with a new, operational fiscal rule and restrict earmarking.

SPECIAL FEATURES: FISCAL POLICY; PRODUCTIVITY; INCLUSIVE GROWTH

Well-being is high in Canada, and the economy has regained momentum, supported by a rebound in exports and strengthening business investment. Macroeconomic policies are gradually becoming less stimulatory, and budget policies are sustainable in the long term, although difficulties remain at the provincial level. House price appreciation has slowed and even reversed in some locations, partly in response to macro-prudential and tax measures, reducing wealth gains and the associated boost to private consumption, but prices and household debt remain high and affordability poor. The major risks to the economic outlook are greater trade restrictions, notably in the United States, and a housing market correction. Progress is being made in improving workforce inclusion, but challenges remain, notably in the areas of increasing female labour force participation, improving labour market information to reduce qualifications mismatches and supporting later retirement through more lifelong learning and flexibility in working hours. Canada has a well-run immigration system. Immigrants are generally well integrated, although their earnings are considerably lower than those of the comparable native-born. Selection of economic immigrants has been refined and integration programmes developed to close this gap, but these measures need to be taken further. Meeting Canada’s climate-change commitments will also be challenging.

SPECIAL FEATURES : INCLUSIVENESS; IMMIGRATION