Browse by: "2023"

Viet Nam has made remarkable economic progress over the past decades, sustaining high economic growth. The economy has also proven resilient to shocks, including the COVID-19 pandemic. Extensive and continued reforms since the late 1980s have been key to this economic success. Nevertheless, with significant challenges ahead, Viet Nam needs to make additional efforts to advance structural reforms that will further strengthen market forces. The population is rapidly ageing and boosting productivity is an urgent priority. This will require further reforms to reduce state involvement, especially in network sectors such as telecommunications, and ensure a level playing field among all firms. Further deepening trade integration is also crucial to strengthen supply chains amid the changing global economic landscape. Despite recent increases in digital uptake, Viet Nam needs to upgrade worker skills by improving vocational training and adult learning. The pledge to achieve net zero emissions by 2050 requires dramatic changes in the economic system. To reduce dependence on fossil fuels, new investment in coal should be halted and the implementation of a carbon market accelerated. As these reforms will require additional fiscal resources, the tax base should be expanded to enhance government revenues.

SPECIAL FEATURES: PRODUCT MARKET REGULATION; DIGITALISATION; GREEN GROWTH

Alongside a fast recovery from the COVID-19 pandemic, macroeconomic policies and high commodity prices have contributed to surging inflation, growing external imbalances and implicit liabilities. These vulnerabilities reduce the economy’s resilience to shocks. Anchoring inflation expectations remains a key challenge going forward. Making the regulatory framework more predictable and flexible would help to strengthen economic resilience. Strict regulations limit the entry of new firms, shielding incumbents from internal and external competition. Ensuring a rules-based, level-playing field for firms requires enforcing rules without exemptions. More flexible labour markets would create more high-quality formal jobs but should be accompanied by a comprehensive reform programme that shifts job loss protection to a broader-based unemployment insurance scheme and well-designed activation policies. Ramping up efforts to increase female employment is key to address high rates of non-participation of women. Equipping young people with relevant skills would allow to make the most of the demographic dividend while also addressing rising skill mismatches.

SPECIAL FEATURE: LABOUR MARKET, EDUCATION AND SKILLS

Thailand has achieved remarkable economic progress over the past decades. A strong and timely policy response helped to cushion the economic and social impact of the pandemic, and of high energy and food prices. While bold fiscal support prevented the economy from falling into a recession, public debt has risen and fiscal consolidation should now continue at a gradual pace. Rising social demands, population ageing and the green transition will likely add to public spending pressures and call for raising additional tax revenues. Boosting productivity and mastering the transition towards more sustainable and inclusive growth will require stepping up delayed structural reforms. Competition remains limited across several sectors, likely related to market entry barriers and high regulatory burdens. More than half of workers lack formal employment and social security does not cover most of them. Social pensions provide a minimum income floor for elderly people, and raising them could allow significant inroads in the fight against poverty and inequality. Meeting climate pledges will require bold and well-organised reforms. Renewable power generation has advanced, but the overall share of renewable energy sources remains lower than in peer countries.

SPECIAL FEATURES: BOOSTING PRODUCTIVITY; INCLUSIVE RECOVERY; GREEN GROWTH

After a relatively strong performance during and after the pandemic, short-term growth prospects are weak. High inflation has eroded real wages and tighter monetary policy has increased borrowing costs and led to a housing price correction. Macroeconomic policies should ensure that higher inflation does not become entrenched. Better matching skills to labour demand, loosening rent controls and improving the integration of disadvantaged groups into the labour market could further boost employment and lay the ground for an inclusive recovery. Income taxation and the social safety net could also better incentivise work, in the context of population ageing and mounting spending pressures ahead. Sweden is among the OECD’s best performers in reducing greenhouse gas emissions, with a comprehensive policy framework and relatively efficient policies. However, the decision to reduce biofuel blending requirements will likely move the 2030 reduction target out of reach unless compensated by new ambitious measures. Completing a nascent green industrial revolution will require considerable investments in electricity generation, storage and transmission, but long planning and permitting procedures slow many key projects down. Attracting the people and skills to run industry and complementary public services is a particular challenge for northern communities already facing labour shortages.

SPECIAL FEATURES: CLIMATE POLICIES AND SWEDEN’S GREEN INDUSTRIAL REVOLUTION

Spain implemented sizable measures to cushion the impact of the pandemic and of the inflationary shock after Russia’s war of aggression against Ukraine. The economy has held up well, but public debt, which was already high, has increased because of the pandemic, making it urgent to step up the pace of fiscal consolidation. Public policy should continue to address Spain’s structural weaknesses. Growth potential is low and will remain so with the rapid ageing of the population. Fulfilling the country’s objectives to fight climate change will require a strong and broad commitment in favour of a cleaner energy mix and a more environment-friendly tax regime. Unemployment remains the highest in the OECD and the integration of young people into the job market remains challenging, although recent reforms have reduced the high share of temporary contracts. Improving educational and labour market outcomes among the young should entail strengthening the connection between the educational system and the labour market, supporting students at risk of falling behind, improving career counselling, and providing a more efficient public employment service. Boosting the low level of entrepreneurship among young people requires additional financial and educational support. More social rental housing in stressed areas would facilitate access to housing for young people.

SPECIAL FEATURE: INCREASING OPPORTUNITIES FOR THE YOUNG IN SPAIN

The Portuguese economy has rebounded strongly from the COVID-19 crisis. Though high inflation and weak global economic conditions have slowed growth in 2022, renewed fiscal support helped to cushion the impact. Public debt relative to GDP has declined below its 2019 level, but rapid population ageing and strong investment needs are increasing fiscal pressures. Potential growth and productivity gains have declined and skill shortages have emerged. Implementing the ambitious Recovery and Resilience Plan and ensuring fiscal sustainability through more efficient spending and a strengthened fiscal framework are key to a sustained recovery. Streamlining complex administrative processes as part of the public sector’s digitalisation efforts and reviewing regulations in professional services and retail trade can improve productivity. In addition, investment in the green transition should continue to reduce greenhouse gas emissions and strengthen climate resilience, in line with Portugal’s goal of carbon neutrality. At the same time, while life expectancy is high, the health sector is suffering from staff shortages, underinvestment and long waiting lists. Moving towards a more integrated system of primary, community and hospital care could improve the quality of care and value for money. Reforming primary care would also help to improve access for low-income households and limit avoidable hospitalisations.

SPECIAL FEATURE: IMPROVING HEALTH OUTCOMES

Poland has successfully managed a large inflow of refugees from Ukraine. The impact of Russia’s war of aggression against Ukraine is overshadowing the outlook and economic growth is expected to slow to 0.9% this year before it recovers to 2.4% in 2024. Both monetary and fiscal policies should ensure that higher inflation does not become entrenched. Fiscal policy continues to support the economy in managing higher energy prices. Long term fiscal pressures need to be addressed, for instance by broadening the revenue base, improving spending efficiency and raising retirement age.

Digitalisation can help unleash the entrepreneurial potential of Polish businesses at home and in global markets but requires adequate skills. This requires the government to take a comprehensive approach across several policy areas, such as adult education, life-long learning and training for SMEs.

Poland has made progress in transitioning to net zero emissions by 2050, but the rate of decarbonisation needs to accelerate significantly. Setting out a clear long-term path for carbon prices would provide more clarity to households and businesses. A just energy transition requires supporting the most affected workers and regions.

SPECIAL FEATURE: DIGITALISING THE POLISH ECONOMY

Peru's solid macroeconomic framework has driven substantial economic growth and poverty reduction in the past two decades. While the economy swiftly rebounded from the pandemic due to strong policy support, it exposed structural weaknesses such as a large informal sector and stark regional disparities in accessing public services. More recently, growth has slowed, and inflation remains high but declining. Looking ahead, main challenges for boosting productivity and investment include strengthening competition, improving regulations, diversifying exports, and enhancing infrastructure. Improvements in governance and the rule of law are essential pillars for achieving sustainable long-term growth and social cohesion. Expanding access to quality education, reducing social contributions, particularly for low-income workers, and providing a same basic level of universal social protection for all workers, formal and informal alike, would help reducing widespread informality and inequities. This will require raising additional tax revenues and improving spending efficiency. Environmental challenges and risks loom large, but also provide significant opportunities for the future. To tackle environmental challenges Peru needs to curb deforestation, while capitalizing on its renewable energy potential to reduce reliance on fossil fuels.

SPECIAL FEATURES: RAISING PRODUCTIVITY, EXPANDING SOCIAL PROTECTION, REDUCING LABOUR INFORMALITY

The Dutch economy swiftly returned to its pre-pandemic growth path, but rapidly rising inflation disrupted growth, magnifying existing challenges, such as the urgency of the transition to net zero, ageing-related fiscal pressures, and pervasive labour shortages. Significant investments in low-carbon infrastructure and technologies are needed to reduce fossil fuels dependence and exposure to global energy price fluctuations. Healthy public finances allowed for fiscal support to protect households and firms from surging energy prices, but population ageing will increase fiscal pressure going forward. Streamlining the tax system would enhance macro-financial stability and productivity by reducing distortions in investment and labour supply decisions. Lifting labour supply, in complement to raising productivity, would help to strengthen growth potential and enable the green and digital transitions. Removing tax disincentives on additional hours worked and streamlining income-dependent benefits while improving access to childcare would both increase labour input and reduce inequalities. Supporting re- and upskilling of the workforce, as well as narrowing regulatory gaps between regular and non-standard forms of employment further would alleviate shortages by facilitating transitions between occupations. Better integrating people with a migrant background and easing medium-skill labour migration in specific occupations could further boost labour supply.

SPECIAL FEATURE: LIFTING LABOUR SUPPLY

The Israeli economy has rebounded strongly from the COVID-19 pandemic and has proven resilient to the repercussions of Russia’s war of aggression against Ukraine. Inflation has risen above the central bank’s target range amid strong demand and a tight labour market. Demographic challenges, related to the rising share of population groups with weak labour market attachment and ageing, will put pressure on future growth and fiscal sustainability. Addressing these challenges and reducing large labour market disparities will require setting appropriate work incentives and providing better support for working parents; improving skills at all stages of the learning cycle; as well as increasing mobility and reallocation towards high productivity jobs and firms, in particular in the high-tech sector. To maintain good health outcomes, emerging doctor shortages need to be addressed and the interaction between the public and private health care sector reformed. Reducing digital gaps across households and firms, by improving digital infrastructure, upgrading skills, raising competition and reducing financing constraints, can boost productivity growth and narrow the productivity divide between the high-tech sector and the rest of the economy. Fully harnessing Israel’s solar energy potential can help accelerate the green transition.

SPECIAL FEATURE: ADDRESSING LABOUR MARKET CHALLENGES

Iceland’s economy is one of the fastest-growing in the OECD, driven by foreign tourism and strong domestic demand. The labour market is tight and wage growth robust, while high wage compression helps maintain a highly egalitarian economy. Inflation is persistent and broadening, and inflation expectations have de-anchored. The fiscal stance is tightening but consolidation could be faster to support monetary policy. Despite progress, barriers to entry remain in many sectors. Structural reform could raise productivity while also contributing to disinflation. Higher and broader taxation of greenhouse gas emissions, and investing in lower-cost actions to cut emissions, would help achieve further reductions efficiently. Immigration has increased rapidly since the late 1990s, driven largely by strong economic growth and high standards of living. This has brought important economic benefits, including by boosting the working age population and helping Iceland to meet labour demands in fast-growing sectors. However, challenges regarding the integration of immigrants and their children need to be addressed. More effective language training for immigrants and improved skill recognition procedures are called for. So is enhancing teachers’ preparedness to accommodate students’ diverse educational needs. Better integration also requires meeting the housing needs of the immigrant population, including through expanding the supply of social and affordable housing.

THEMATIC CHAPTER: ADDRESSING THE CHALLENGES AND UNLEASHING THE BENEFITS OF IMMIGRATION

Greece has rebounded well from the COVID-19 crisis, generating strong employment growth. Increasing investment and exports, government support measures, implementation of the Greece 2.0 Recovery and Resilience Package and the reforms of the past decade have been supporting the economy. However, headwinds from surging energy prices and uncertainty following Russia’s war of aggression against Ukraine have slowed the recovery. Achieving and maintaining modest primary budget surpluses, better targeting energy support measures and maintaining public revenues while further broadening the tax base and improving its efficiency will further enhance Greece’s prospects of achieving an investment-grade sovereign debt rating. Maintaining the reform momentum, completing the restoration of banks’ health and continuing efforts to improve the business climate, can ensure that sustainable recovery continues over the longer term. This would also support Greece in raising further living standards as it adjusts to a changing climate and achieves net zero emissions. As elsewhere, the changing climate is already disrupting livelihoods and well-being in Greece. A well-chosen mix of carbon pricing, public infrastructure investments, raising buildings’ energy efficiency and moving transport into low-emission modes can achieve emission cuts cost-effectively, while making people better off with improved housing quality and mobility. Engaging all stakeholders, maintaining a consensus and supporting vulnerable households affected by the green economy transition will help ensure progress continues into the longer term.

SPECIAL FEATURE: THE GREEN ECONOMY TRANSITION

After a decade of strong export-led growth, decreasing unemployment and fiscal surpluses, the COVID-19 pandemic and the energy crisis have revealed structural vulnerabilities and emphasised the need for accelerating the green and digital transitions. At the same time, rapid population ageing increases public spending pressures and exacerbates skilled labour shortages. Reducing labour taxes, particularly for low-skilled workers and second earners, facilitating skilled migration, and improving education and training are key to raise labour supply. Modernising the public administration to lower the administrative burden and improve public services would help to foster business dynamism and innovation. Addressing large investment needs while safeguarding fiscal sustainability will require reducing tax expenditures, which are often distortive, regressive or environmentally harmful, and strengthening tax enforcement, but also increasing public spending efficiency and better prioritising spending. Reaching climate neutrality in 2045 while safeguarding competitiveness and social cohesion will require cost-effective mitigation policies. Germany should strengthen carbon pricing, but complement this with well-designed sectoral regulations and subsidies, especially for boosting green R&D, expanding sustainable transport and electricity network infrastructure, and decarbonising the housing sector. Using carbon pricing receipts to support vulnerable households and improve the quality of active labour market policies would help to protect social cohesion.

SPECIAL FEATURE: REACHING NET ZERO WHILE SAFEGUARDING COMPETITIVENESS AND SOCIAL COHESION

The European recovery has been disrupted since the onset of Russia’s war of aggression against Ukraine. Co-ordinated and timely policy action helped avoid a severe downturn, but the near-term outlook is clouded by uncertainty and downside risks. Monetary and fiscal policy need to become sufficiently restrictive to reduce underlying inflationary pressures durably. Fiscal sustainability should be grounded in well-prioritised, efficient public spending and underpinned by improved economic governance. Protecting the level playing field through a strong state aid framework and deepening the Single Market would open opportunities for firms to grow and innovate, facilitating needed structural change. Furthermore, achieving the net-zero target by 2050 requires an acceleration of emission reductions. More action is needed across all sectors, but particularly in sectors not covered by emission trading, notably agriculture, building and transport. Reducing emissions in these sectors will rely on regulatory measures and a gradual alignment and raising of carbon prices. An important element of the green transition is affordable and secure energy, which requires more integrated electricity markets. Deeper capital markets could support the development of new clean technologies. Moreover, improving labour mobility and skills will help to reduce transition costs.

SPECIAL FEATURE: ACCELERATING THE GREEN TRANSITION