by Hyunjeong Hwang, OECD Economics Department

Sweden has a very high labour force participation rate and one of the highest employment rates in the OECD, but cannot afford to be complacent. Maintaining high employment is a prerequisite for the sustainability of the Swedish welfare state and to counter the ageing-related contraction of the labour force and its negative fiscal impacts. The 2023 OECD Economic Survey of Sweden delves into some challenges holding back labour supply and proposes measures to make the Swedish labour market stronger, more inclusive, and conducive to sustained economic growth.

Long-term unemployment, notably among the foreign-born, remains a significant challenge. With lower educational attainment and lower Swedish language skills than natives, foreign-born people may struggle to get a job in a labour market characterised by a compressed wage distribution that demands high skills and productivity. Additionally, foreign-born women often face strong gender and family norms. Re-skilling and activation policies are key for these groups. A recent reform of the Public Employment Service, introducing a purchaser-provider model with outcome-based payments for employment services could help, but needs to be carefully monitored and calibrated to align providers’ incentives with the objectives of the reform and to secure sufficient competition. Carefully reviewing social assistance with the aim to strengthen work incentives while ensuring decent living standards for people in need could also help.

Taxes on work are high, particularly among above-average income earners in Sweden (Figure 1). The top personal income tax rate is among the highest in the OECD and it applies from a low threshold. As a result, a relatively large share of taxpayers faces the top marginal tax rate. Meanwhile, tax rates on dividends and capital gains are relatively low. The large difference between taxes on labour income and capital income creates incentives for high-wage earners to reclassify their income as capital income in order to minimise their tax obligations. Furthermore, housing taxation is both low and regressive. Shifting taxation away from labour and towards property and capital income would thus help create a more balanced and equitable tax structure, promoting labour supply and inclusive growth while preserving fiscal sustainability.

Lengthening working lives as life expectancy increases is essential to strengthen public finances and to ensure sufficient pension income. Reforms in the 1990s made Sweden’s pension system the envy of countries around the world, with in-built sustainability and incentives to lengthen working lives, and many policies have been put in place since to extend working lives. However, recent reforms to boost basic pensions and to introduce a new tax-funded income pension supplement go in the direction of reducing incentives to remain in work for many older workers and weaken the long-term sustainability of the system. The stated purpose of these changes was “to ensure a reasonable standard of living for pensioners who receive a low level of earnings-related pensions”. However, on average, Swedish pensioners are relatively well-off compared internationally and compared to younger generations in Sweden. Sweden should therefore change direction by holding back the uprating of tax-funded pensions for some time to come.

Relaxing strict rent controls, which would improve labour mobility and increase the supply of rental dwellings, should be considered. Waiting times for rental housing can stretch from years to decades in major cities in Sweden, perpetuating the scarcity of rental options. This pushes those with limited queuing time and limited means to buy housing, particularly youth and immigrants, into overcrowded housing, sublet or black markets with significantly higher rents. Greater flexibility in rental housing would facilitate the matching of skills with job vacancies and boost productivity by more efficiently allocating talent to where it is most needed.

Further reading:          

OECD Economic Survey of Sweden (2023), OECD Economic Surveys: Sweden 2023, OECD Publishing, Paris.

by Filippo Maria D’Arcangelo, Tobias Kruse, Mauro Pisu and Marco Tomasi

Limiting global warming and the economic and social losses it will cause requires a drastic increase in investments in low-carbon infrastructures and technologies. Global annual investments in low-carbon energy alone will have to increase threefold by 2030 compared with the level in 2022 (IEA, 2022). Private capital plays a pivotal role in financing these investments. However, investors responsible for capital allocation decisions need clear policy signals and the capacity to correctly assess firms’ exposure to the risks and opportunities mitigation policies entail (i.e. transition risks). For example, mitigation policies might drive technological changes, accelerate the obsolescence of certain assets and cause changes in demand, which affect firms differently based on their environmental and economic performance.

A new OECD working paper (D’Arcangelo et al., 2023) assesses to what extent climate policies lead sophisticated investors (i.e. lenders in the syndicated loan market) to discriminate across borrowers’ environmental performance and how this affects borrowers’ investment decisions. The study investigates how changes in the stringency of mitigation policies impacts the syndicated loans’ spread (i.e. the interest rate of syndicated loans minus a benchmark interest rate) of borrowers with good and bad environmental performance – measured by firms’ emission intensities, patents in climate-change mitigation technologies, and Environment, Social and Governance (i.e. ESG) scores.

Stringent climate mitigation policies decrease the cost of debt of ‘green’ firms and increase that of ‘brown’ firms

Firms with good environmental performance (measured by low emission intensity or high patenting activity in climate change mitigation technologies) benefit from a lower cost of debt, as measured by syndicated loans spread. These effects can be large when mitigation polices are stringent but disappears when they are not (Figure 1). For example, when carbon prices are above EUR 50/t CO₂, firms in the top 25% of mitigation-technology patent’s distribution enjoy a loan spread that is 30% lower than firms in the bottom 25%. This is equivalent to EUR 1.5 million less in yearly interest payments for the median syndicated loan deal (or 41 basis points lower loan spread).

ESG scores are weak proxies of firms’ actual environmental performance and their exposure to transition risks

Sophisticated investors reward firms with good ESG scores irrespective of mitigation policies’ stringency, though they do not appear to rely on ESG scores to price transition risks. Firms disclosing an ESG score benefit from lower syndicated loan spreads and this advantage increases with better scores. However, the effect of ESG scores on loan spreads is disconnected from the stringency of climate policy. This finding supports the view that ESG scores are weak proxies of firms’ actual environmental performance ​(Berg, Kölbel and Rigobon, 2022; OECD, 2022a)​.

Pricing transition risks result in higher investments by ‘green’ firms and lower investment by ‘brown’ firms

Mitigation policies might encourage or discourage investment through the cost of debt. Simulations based on the empirical estimates indicate that a EUR 10/tCO₂ increase in CO₂ taxes (equivalent to the average increase between 2002 and 2018 for countries that have a CO₂ tax) raises investment by 12% for the top green innovators. It decreases investment by 11% for the top emitters. These effects are also economically significant for technology-push policies. Increasing technology support policy (in line with what observed in the 2002-18 period) is associated with a 5.2% increase in investment for the top green innovators and a 2.7% decline in investment for the top emitters.

Aligning private capital with the net-zero transition needs better and more widespread data on firms’ environmental performance

The results suggest that investors operating in the syndicated loan market assess transition risks based on mitigation policies’ stringency and firms’ actual environmental performances. However, assessing and pricing firms’ transition risks may require detailed firm-specific information and the capacity to analyse them that only large and sophisticated investors (as those considered in this analysis) can afford. Relying on ESG and the Environmental pillar scores is not a viable substitute, as such scores do not provide yet sufficient information to assess firms’ transition risks.

Improving the quality of ESG scores is especially important for less sophisticated and passive investors, which tend to rely on such metrics to gauge transition risks and make investment decisions accordingly. Making strides in this direction, which include among other things improving the quality of corporate transition plans and establishing mandatory emission reporting (OECD, 2022b; OECD, 2022a), will mobilise larger private capital flows towards firms able to thrive as mitigation policies become more stringent and thus align capital allocation decisions with the net-zero transition. 

References

Berg, Florian, Julian Kölbel, and Roberto Rigobon. 2022. “Aggregate Confusion: The Divergence of ESG Ratings.” Review of Finance 26 (6): 1315-1344. doi:https://doi.org/10.1093/rof/rfac033.

D’Arcangelo, Filippo Maria, Tobias Kruse, Mauro Pisu, and Marco Tomasi. 2023. “Corporate cost of debt in the low-carbon transition: The effect of climate policies on firm financing and investment through the banking channel.” OECD Economics Department Working Papers 1761. doi:https://doi.org/10.1787/35a3fbb7-en.

IEA. 2022. “World Energy Investment 2022.” doi: https://www.iea.org/reports/world-energy-investment-2022.

OECD. 2022a. “ESG ratings and climate transition: An assessment of the alignment of E pillar.” doi:https://doi.org/10.1787/2fa21143-en.

OECD. 2022b. “Policy guidance on market practices to strengthen ESG investing and finance a climate transition.” doi:https://doi.org/10.1787/2c5b535c-en.

By Cassandra Castle, Assia Elgouacem, Giuliana Sarcina, Enes Sunel, and Jonas Teusch

In the past few years, the global economy has experienced two major crises: the COVID-19 pandemic and Russia’s war of aggression against Ukraine. The recovery from the pandemic and the war have both amplified tensions in the energy sector and provoked a surge in energy prices.

The fiscal response to the energy crisis has been large, especially in Europe

The 2023 OECD Energy Support Measures Tracker, released on 6 June 2023, shows that in 2022, support measures in response to higher energy prices had a gross fiscal cost of 0.7% of GDP in the median OECD economy, rising to over 2.5% of GDP in some European countries (Figure 1). By way of comparison, these costs exceed what the median OECD country spends on unemployment benefits and are about half of the expenditure on family and child benefits. Comparable levels of fiscal support are foreseen for 2023 in the OECD as a whole. However, the actual cost of support will heavily depend on the evolution of energy prices.

The 2023 OECD Energy Support Measures Tracker provides comprehensive data and information on energy-crisis related fiscal support measures

Documenting the measures governments have implemented to face the energy price shock and being able to compare them across countries, remains critical to improving support policies and building resilience against future crises. The 2023 Tracker systematically catalogues support measures in place from February 2021 to May 2023 in 41 countries – 35 OECD countries and 6 non-OECD economies (Brazil, Bulgaria, Croatia, India, Romania and South Africa).[1] The data have been collected and processed by OECD country, fiscal and energy policy experts and validated by national administrations.

The dataset provides granular information to comprehensively characterise individual support measures. These include start and end dates, gross fiscal costs, type of support and delivery mechanism, main beneficiaries of the measures (indicating whether vulnerable households or firms from specific sectors are targeted, and, where applicable, summary information on the differentiation of support between beneficiaries) and the impacted energy carriers (such as diesel, gasoline, electricity, natural gas). The sheer number and diversity of the measures makes classification challenging.

The 2023 Tracker classifies more than 550 support measures into two main categories: (1) price measures (e.g. reduced energy taxes and energy price caps), estimated to cost USD 422 billion in 2022-23; and (2) income measures (e.g. transfers and tax credits to consumers), estimated to total USD 383 billion in 2022-23. Within income measures, a distinction is made between measures that reduce the average price of energy in consumers’ energy bills and measures that are unrelated to the level of energy consumption (Figure 2).

The measures – which were implemented swiftly amidst uncertainty, political economy constraints, and a focus on administrative simplicity – affect the behaviour of firms and people in different and significant ways, and may contribute to or detract from important longer-term policy objectives. Income support can maintain incentives to save energy whereas price measures weaken them, propping up demand for fossil fuels and effectively acting as a negative carbon price. Among income measures, those that are unrelated to the level of energy consumption tend better to preserve incentives for energy efficiency improvements than those that reduce the average price in the energy bill paid by consumers.

Measures were rarely targeted and increased the incentive to consume fossil fuels

Untargeted support measures make up the majority of the estimated total cost of support in 2022-23 (Figure 3). Among these, energy price support measures account for over 50% of total spending and carry substantial non-fiscal implications. While price support measures are straightforward to design and often politically popular, they weaken incentives to save energy and are rarely targeted (over 92% of energy price support measures are untargeted), meaning that they tend to disproportionately support better-off households.

A clear taxonomy of measures and data can enable the design of better energy support policies when they are needed

Energy prices are receding, but possible renewed tensions in energy markets due to geopolitical developments and bottlenecks along the energy transition may result in higher energy price volatility in the future. Preparing government policy for possible new energy price spikes requires data and information on how support measures affect the behaviour of households and firms, their impact on public finances and their unintended consequences. The OECD Tracker is a resource for policymakers to do just that.

Interactive dashboard: Energy measures 2022/23

More information

OECD (2023), 2023 OECD Energy Support Measures Tracker, OECD database

OECD (2023), “Aiming Better: Government Support for Households and Firms During the Energy Crisis”, OECD Economic Policy Papers No. 32, OECD Publishing: Paris, https://doi.org/10.1787/839e3ae1-en

[1] The government of Iceland has not taken any energy support measures. The Tracker also includes information on another five countries, for which it was either not possible to quantify the gross fiscal cost of the energy support measures (Argentina, China, Hungary and Indonesia) or these were deemed to have no impact on budget deficits, as is the case of measures providing credit and equity support (Switzerland).

See also: 2026 OECD Energy Support Measures Tracker and accompanying blog: Crude Awakening:  Why energy shocks demand more than quick fixes.

The sharp rise in energy prices linked to the Middle East conflict is reviving a familiar policy dilemma. When energy costs jump sharply, governments come under pressure to shield households and firms. As of March 2026, governments across the OECD have acted swiftly to shield households and firms from rising fuel costs.

Jens Arnold, Aida Caldera, Priscilla Fialho, Paula Garda, Alberto González Pandiella, Michael Koelle, Alessandro Maravalle, Adolfo Rodriguez-Vargas and Elena Vidal, Departamento de Economía, OCDE

Después de dos años con altos crecimientos, mejores de lo esperado, América Latina está volviendo a la senda de bajo crecimiento que tenía antes de la COVID-19. Para 2023 se espera una fuerte ralentización económica, mayor que en el resto del mundo. Esto se debe a una demanda externa que pierde dinamismo y un consumo doméstico golpeado por la pérdida del poder adquisitivo de los hogares, como consecuencia de elevadas tasas de inflación y del endurecimiento de las condiciones financieras entre otros. Mientras que las economías OCDE crecerán un 1.4% en promedio en 2023, el PIB de los siete países de América Latina aumentará un 1.5%. Para 2024 se prevé una mejora, las economías de América Latina repuntaran ligeramente hasta un 1.7% en promedio, por encima del crecimiento promedio de las economías de la OCDE (Cuadro 1), si bien este crecimiento no será suficiente para lograr la convergencia en PIB per cápita con la OCDE. Por otro lado, la inflación se ha ido moderando gradualmente en la mayoría de los países después de alcanzar niveles históricos, gracias a la rápida y fuerte subida de las tasas de política monetaria y menores precios globales de combustibles y alimentos.

Este panorama, ya de si poco alentador, está acompañado de una elevada incertidumbre y de riesgos domésticos y externos inusualmente altos. Un crecimiento mundial menor de lo previsto, especialmente en Estados Unidos y en China, acompañados de una inflación más persistente de lo esperado que implique una política monetaria más restrictiva en el mundo y en la región, representan claros riesgos a la baja. Aunque los buenos niveles de liquidez y capitalización en el sector bancario permitieron que las recientes turbulencias internacionales tuvieran un impacto mínimo en los países de la región, el endurecimiento de las condiciones financieras a nivel global, junto con los signos de inestabilidad en el sector bancario internacional, podrían causar salidas de capitales y un repunte de la aversión al riesgo, junto a volatilidad de los tipos de cambio y del coste de financiación. En términos domésticos, la frecuencia de eventos climáticos severos se ha incrementado debido al cambio climático. Lo mismo sucede con las tensiones sociales que fueron exacerbadas por la pandemia y con las recientes presiones inflacionarias.

A pesar de estas dificultades, un futuro próspero y equitativo en América Latina es posible. Navegar los riesgos en el horizonte requiere fortalecer las cuentas públicas al tiempo que se atienden las crecientes demandas sociales y se mejora el crecimiento de una forma duradera.

Cuadro 1. Perspectivas económicas de los países de América Latina

Fortalecer las cuentas públicas y proteger a los más vulnerables

La situación fiscal permanece frágil en la región. Si bien los déficits fiscales disminuyeron en 2022, la deuda pública sigue históricamente elevada y la carga de intereses ha aumentado, siendo ésta muy sensible al endurecimiento de las condiciones de financiación globales. Todo ello junto con un crecimiento débil plantea riesgos para la sostenibilidad fiscal. Proseguir la consolidación fiscal es crucial para restaurar la confianza de los mercados y reducir los costes del servicio de la deuda a la vez que se enfatiza el gasto social para apoyar a los pobres y hacer frente a las necesidades crecientes en educación, sanidad y protección social. Alcanzar estos objetivos requerirá la movilización de ingresos de manera progresiva, favorable al crecimiento y equitativa. Los programas de transferencias de apoyo social en un contexto de alta inflación deben ser temporales y focalizados hacia los más vulnerables y reducir los incentivos a la informalidad.

Fomentar la participación laboral de las mujeres: clave para impulsar el crecimiento inclusivo

Para impulsar el crecimiento potencial y reducir las desigualdades en América Latina será clave una agenda de reformas para mejorar el acceso y la calidad de la educación, incrementar la competencia y reducir las brechas de infraestructura (transporte y digital). Pero también incrementar la participación laboral de las mujeres será un ingrediente prioritario. La brecha en las tasas de participación femenina en el mercado laboral respecto a los hombres es grande, mayor que el promedio de la OCDE (Gráfico 1). Además, cuando las mujeres trabajan tienen más probabilidades de tener trabajos informales con peores condiciones laborales, reduciendo sus salarios. Cerrar estas desigualdades de género impulsarían muy significativamente el crecimiento en la región de una forma equitativa. No solo se incrementaría el número de personas en la fuerza laboral, sino que también se impulsaría la productividad, al mejorar la adecuación entre trabajadores y empleos. A su vez, el mayor crecimiento económico también tendría un impacto fiscal positivo, ayudando en el reto de fortalecer las cuentas públicas.

¿Como hacerlo? Promover el acceso a la educación inicial, que a pesar del progreso reciente es insuficiente en la mayoría de los países de América Latina, es clave para aumentar la participación laboral de las mujeres. La tasa de participación escolar de los niños menores de 6 años es a menudo más baja en los hogares de menores ingresos, donde las necesidades de cuidado impiden que las madres participen en el mercado laboral. Deben incrementarse la oferta de plazas en las guarderías y subsidios para los hogares con menos recursos. Estas distorsiones de género en el mercado laboral están también estrechamente relacionadas con las desigualdades en la formación de las mujeres. Por tanto, es crucial seguir invirtiendo en educación básica accesible y de calidad. Finalmente, es necesario promover campañas de sensibilización y educación para combatir estereotipos de género tan arraigados en los países de América Latina.

Gráfico 1. La brecha de género en participación laboral en los países de Latinoamérica está muy por encima del promedio de la OCDE

Participación laboral, población 15-64 años de edad, por sexo, 2021

Más información:

OECD Economic Outlook, junio 2023– Reporte completo en inglés con las proyecciones macroeconómicas, los principales desafíos estructurales e información detallada por país.

Perspectivas económicas de la OCDE para países de América Latina, junio 2023.

Información detallada para Argentina | Brasil | Chile | Colombia | Costa Rica | México | Perú

By Clare Lombardelli, OECD Chief Economist

The global economy is turning a corner but faces a long road ahead to attain strong and sustainable growth. Global GDP growth slowed substantially throughout 2022, but several of the factors weighing negatively are now unwinding. Falling energy prices and headline inflation, easing supply bottlenecks and the reopening of China’s economy, coupled with strong employment and relatively resilient household finances, all contribute to a projected recovery. Nevertheless, the recovery will be weak by past standards. We project global growth to be 2.7% in 2023, with a modest pick-up to 2.9% in 2024 – both well below the average growth rate in the decade preceding the COVID-19 pandemic.

Policymakers need to act decisively on macroeconomic and structural policy to deliver stronger and more sustainable growth. This is hard. Core inflation remains too persistent. Debt levels are too high. And potential output is too low.

Monetary policymakers need to navigate a difficult road. Although headline inflation is declining thanks to lower energy prices, core inflation remains stubbornly high, more so than previously expected. Central banks need to maintain restrictive monetary policies until there are clear signs that underlying inflationary pressures are abating. Some economies grappling with stubbornly high core inflation may require additional interest rate increases. However, policymakers must keep a watchful eye, given the uncertainties around the exact impact of the rapid and globally synchronised monetary policy tightening following an extended period of low interest rates. The tightening has already revealed some vulnerabilities in financial markets. Should further financial market stress arise, central banks should deploy financial policy instruments to enhance liquidity and minimise contagion risks. Clear communication will be crucial to avoid confusion about the potential conflict between pursuing price stability and financial stability mandates.

The choices for fiscal policymakers are clearer but no easier to implement given the inherent political sensitivity of policy choices with direct redistributive effects. Fiscal policy played a vital role in supporting the global economy through the shocks of the COVID-19 pandemic and Russia’s war in Ukraine. However, in the aftermath, most countries are grappling with higher budget deficits and higher public debt. The burden of debt servicing is increasing and spending pressures related to ageing and the climate transition are building.

As the recovery takes hold, fiscal support should be scaled back and better targeted. Energy price support should be withdrawn as energy prices fall. Vulnerable households inadequately covered by existing social protection systems, will continue to need support, as still high food and energy prices particularly burden the most disadvantaged. Limited resources should be targeted only to those who really need it and to high-priority productivity-enhancing investments, including those driving the green transition and improving labour supply and skills. Gradually unwinding fiscal support will help reduce the burden on monetary policy, strengthen buffers against future crises and prepare for longer-term challenges

Emerging-market economies face challenges from tight global financial conditions: higher debt servicing costs, capital outflows, and reduced credit availability from foreign lenders. Moreover, rising geopolitical tensions and concerns about supply chain security have prompted several countries to implement trade and investment restrictions. Increasingly restrictive trade policies risk curtailing the gains from global trade and harming the development prospects of low-income countries.

Ultimately only ambitious structural policy reforms can sustainably raise long-term economic growth and people’s quality of life around the world. Revitalising labour and product markets; removing barriers to cross-border trade; promoting competition and adapting competition policies to the digital era; and enhancing skill development are essential elements of the structural reform agenda.

Private and public investment is needed in human, tangible and intangible capital to enable people to make the most of their skills and capabilities, and to harness the ever-increasing opportunities from technological transformation. Investment in education and skills is critical to enable people to flourish in the future economy and reap the benefits of increased productivity.

Policymakers need to unwind the impact of a sequence of negative shocks to the global economy and face a complex set of challenges in doing so. They need to calibrate monetary and fiscal policies to curtail inflation and rebuild fiscal buffers without overly reducing growth. Delivering sustainably higher rates of growth will need bold and forward-thinking structural policy reforms allowing us to harness the opportunities of rapid technological advances, demographic shifts, and the climate transition.

More information:

Editorial from the OECD Economic Outlook, June 2023

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Clare Lombardelli, Cheffe économiste de l’OCDE

L’économie mondiale a amorcé un tournant, mais la route est encore longue pour parvenir à une croissance forte et durable. La croissance du PIB mondial a sensiblement ralenti tout au long de 2022, mais plusieurs des facteurs qui la brident encore commencent à s’estomper. Le recul des prix de l’énergie et de l’inflation globale, l’atténuation des perturbations de l’offre et la réouverture de l’économie chinoise sont autant de facteurs qui, conjugués à la vigueur de l’emploi et à la relative résilience des finances des ménages, contribuent à la reprise prévue. Celle-ci sera néanmoins timide par rapport aux rebonds observés dans le passé. D’après nos projections, la croissance mondiale s’établira à 2.7 % en 2023, avant de se redresser légèrement pour atteindre 2.9 % en 2024, soit bien en deçà du taux de croissance moyen enregistré durant la décennie qui a précédé la pandémie de COVID-19.

Les décideurs publics doivent agir avec détermination sur les leviers macroéconomiques et structurels pour asseoir une croissance plus forte et plus durable. La tâche est ardue : l’inflation sous-jacente est trop persistante, les niveaux d’endettement sont trop élevés et la production potentielle est trop faible.

Les autorités monétaires doivent négocier un virage délicat. Malgré la décrue de l’inflation globale due au recul des prix de l’énergie, l’inflation sous-jacente reste obstinément forte, en tout cas plus élevée qu’on ne l’avait anticipé. Les politiques monétaires doivent rester restrictives tant qu’aucun signe d’atténuation des tensions inflationnistes sous-jacentes ne sera clairement confirmé. De nouveaux relèvements des taux d’intérêt pourraient être nécessaires dans certaines économies en proie à une inflation sous-jacente résolument élevée. Les autorités doivent toutefois rester vigilantes compte tenu des conséquences incertaines du resserrement monétaire rapide et synchronisé opéré à l’échelle mondiale après une longue période de faibles taux d’intérêt. Ce changement de cap a déjà mis au jour certaines vulnérabilités sur les marchés financiers. Si les tensions devaient s’accentuer, les banques centrales devraient mobiliser divers instruments de politique financière pour accroître la liquidité et réduire autant que possible les risques de contagion. Elles devront à tout prix communiquer clairement pour éviter toute confusion quant au conflit potentiel entre le double mandat de stabilité des prix et de stabilité financière.

Les choix qui s’imposent aux autorités budgétaires sont plus évidents, mais pas plus faciles à mettre en œuvre, les décisions qui ont des effets redistributifs directs étant toujours politiquement sensibles. La politique budgétaire a joué un rôle essentiel en soutenant l’économie mondiale face aux chocs provoqués par la pandémie de COVID-19 et la guerre menée par la Russie en Ukraine. Cependant, la plupart des pays sont aujourd’hui aux prises avec des déficits budgétaires plus amples et un endettement public en hausse. La charge du service de la dette s’alourdit tandis que les tensions sur les dépenses liées au vieillissement démographique et à la transition climatique s’accentuent.

Alors que la reprise va s’installer, il faudra réduire et mieux cibler les mesures de soutien budgétaire. Les aides liées aux prix de l’énergie devraient être démantelées à mesure que ceux-ci diminueront. Les ménages vulnérables, dont la protection sociale est actuellement insuffisante, continueront d’avoir besoin d’aide, le niveau toujours élevé des prix de l’alimentation et de l’énergie pesant particulièrement sur les plus défavorisés. Les ressources disponibles, limitées, devraient être consacrées à celles et ceux qui en ont réellement besoin, ainsi qu’aux investissements hautement prioritaires propices aux gains de productivité, notamment ceux qui favorisent la transition écologique et améliorent l’offre de main-d’œuvre et les compétences. La suppression progressive des aides budgétaires permettra de moins solliciter les instruments de politique monétaire, de renforcer les marges de manœuvre pour affronter les crises futures, et de se préparer à faire face aux enjeux à plus long terme.

En raison du durcissement des conditions financières à l’échelle mondiale, les économies de marché émergentes traversent des difficultés, notamment un alourdissement du service de la dette, des sorties de capitaux ou une réduction de l’offre de crédit des prêteurs étrangers. Par ailleurs, la montée des tensions géopolitiques et les préoccupations grandissantes concernant la sécurité des chaînes d’approvisionnement ont incité plusieurs pays à prendre des mesures limitant les échanges et l’investissement. Des politiques commerciales de plus en plus restrictives risquent de réduire les gains tirés du commerce mondial et de compromettre les perspectives de développement des pays à faible revenu.

En définitive, seules des réformes structurelles ambitieuses peuvent améliorer durablement la croissance économique à long terme et la qualité de vie des populations partout dans le monde. Tout train de réformes structurelles doit impérativement viser à redynamiser les marchés du travail et des produits, à lever les obstacles aux échanges internationaux, à favoriser la concurrence et à adapter les politiques en la matière à l’ère numérique, ainsi qu’à renforcer les compétences.

Des investissements privés et publics dans le capital humain et les actifs matériels et immatériels seront indispensables pour permettre aux individus d’utiliser au mieux leurs compétences et aptitudes, et tirer parti des perspectives toujours plus nombreuses offertes par la transformation technologique. Il est primordial d’investir dans l’éducation et les compétences afin que chacun puisse s’épanouir dans l’économie future et récolter les fruits d’une productivité accrue.

Les décideurs publics vont devoir estomper les effets induits par une succession de chocs négatifs sur l’économie mondiale, et affronter pour cela une série de défis complexes. Il leur faut notamment ajuster les politiques monétaires et budgétaires de façon à réduire l’inflation et à reconstituer des marges de manœuvre budgétaires sans trop freiner la croissance. Pour améliorer durablement les taux de croissance, ils ne pourront se dispenser de mener des réformes structurelles audacieuses et novatrices qui nous permettront de mettre à profit les perspectives ouvertes par les progrès technologiques rapides, les évolutions démographiques et la transition climatique.

Editorial des Perspectives économiques de l’OCDE

By Srdan Tatomir, OECD Economics Department

Poland experienced remarkable economic progress over the last three decades. Living standards have risen from around half the EU average in 1995 to close to 80% in 2021. Poland has substantially increased educational attainment and boosted skills, and Polish firms have successfully integrated into European and global markets. Digitalisation can help to sustain this success as our recent Economic Survey suggests.

While most firms in Poland already employ digital technologies, their use could be more extensive. Total investment in ICT and R&D is well below the OECD average and this is reflected in comparatively lower adoption of individual digital technologies (Figure 1). Most firms have a website, but e-commerce is not widespread. The use of software for managing customer relationships and enterprise resources is average by OECD standards and the adoption of more advanced technologies, such as cloud computing and big data, lags behind most OECD countries. In particular, the use of robots is low compared to other European countries, such as the Czech Republic and Slovakia (Leśniewicz and Święcicki, 2021). Small and medium-size enterprises (SMEs) are less digitalised than larger firms and, given that they account for two thirds of all employment and half of all output, this is where policy should focus.

Figure 1 – Digital technology adoption is relatively low in Poland

Diffusion of selected ICT tools and activities in enterprises, 2021 or latest
As a percentage of enterprises with ten or more persons employed

Digital investment in firms is relatively low for a number of reasons. Firms in Poland tend to overestimate their own technological sophistication (World Bank, 2022). When they consider digital investments, they often undervalue the benefits and overestimate the costs. A lack of time and adequate skills are also cited as obstacles.

The government is already taking action. The ‘Future Industry Platform’ foundation was set up to accelerate the digital transformation of industry through promotion of and technical support for new technology adoption. The Polish Agency for Enterprise Development, known in Poland as PARP, is currently running several pilot programmes to support digitalisation.

To facilitate digital investment in firms, the authorities should consider expanding targeted technical and advisory support. Many ICT investments can be profitable, but SMEs often lack the knowledge and skills to choose the appropriate ICT tools, which results in low investment demand. Thus, there is a need for proactive consultancy and advisory services. For example, Denmark and Austria operate programmes for SMEs that help them to identify digital opportunities and then to implement the new technologies.

Digital technologies require skilled people to use them. Skilled managers are important in identifying new technologies and implementing them (Zadura-Lichota, 2015). Management skill levels are broadly average in Poland, relative to other European countries, but could be increased. Managers also need workers with digital skills to install and operate new digital technologies. However, adults’ digital skills, particularly among older adults, are relatively low (Figure 2). People in Poland tend to use ICT for simple tasks, such as searching for information and using social media, while the use of ICT for work purposes is less widespread.

Figure 2 – Digital skills lag behind most European countries

% of individuals who have basic or above basic overall digital skills, by age group, 2021

Lifelong learning is key to developing digital skills. Adults need to continue to learn digital skills, but participation in formal adult learning is low as firms tend to underinvest in training (Figure 3). This is mainly due to little perceived need for further training, as well as family responsibilities and scheduling issues. Better awareness of the benefits of adult learning, coupled with more extensive and detailed counselling, could encourage adults to develop their digital skills. Adult learning also needs to be made more flexible and modular so that it fits around work and personal duties. Many Polish people learn in less formal ways, such as from colleagues or by themselves. Recognising prior learning and making more use of short learning training certifications, such as micro-credentials, could help identify digital skill gaps, but also encourage workers to profit from their skills in the labour market. Individual training accounts, such as those introduced in France in 2015, can facilitate adult learning.

Figure 3 – Participation in formal adult learning is low

% of the 15-54 population, 2021

Poland needs more ICT specialists. The ICT sector has some of the highest vacancy rates. To increase the number of ICT specialists, it is essential that schools have adequate ICT equipment and that teachers are appropriately trained to teach digital skills. As young people progress with their schooling, they should be able to specialise in ICT. Within vocational education, new ICT programmes have been introduced, which should partly address digital skill shortages in the economy. But universities can also boost the number of ICT graduates through more flexible programmes that allow students from other disciplines to also specialise in ICT. Moreover, Poland should encourage more women to study ICT by raising awareness and through scholarships.

Further digitalising the economy can boost productivity. Closing a quarter of the gap with best performing OECD countries in terms of more ICT adoption in firms and better managerial and digital skills could raise the long-run level of GDP by around 6% (Sorbe et al., 2019). Public policies can support and facilitate this transition but they need to be comprehensive and inclusive to ensure the benefits are shared by all.

References:

Leśniewicz, F. and I. Święcicki (2021), “Czy pandemia przyśpieszyła robotyzację?” [Has the pandemic accelerated robotisation?], Polish Institute of Economics, Warsaw.

OECD (2023), “OECD Economic Surveys: Poland 2023”, OECD Publishing, Paris.

Sorbe, S. et al. (2019), “Digital Dividend: Policies to Harness the Productivity Potential of Digital Technologies“, OECD Economic Policy Papers, No. 26, OECD Publishing, Paris.

Zadura-Lichota, P. (2015), “Innovative entrepreneurship: Revealed and hidden potential for innovation in Poland”, Polish Agency for Enterprise Development (PARP), Warsaw.

World Bank (2022), “Drivers of Productivity Growth in Poland: A Firm-Level Perspective on Technology Adoption and Firm Capabilities”, World Bank Group, Washington DC.

By Patrizio Sicari and Douglas Sutherland, OECD Economics Department

Overall, the quality of healthcare is generally good in Ireland, with life expectancy and the (self-assessed) health status of its population now among the best in the OECD. Even so, the country’s health system struggles in providing effective access to quality care for all, as it copes with rising demand due to rapid population growth and ageing.

Indeed, Ireland’s health system entered 2023 on the backdrop of nationwide bottlenecks in the flow of hospital admissions, particularly within emergency departments, with more than 900 patients waiting for a bed on trolleys – a historical high. More broadly, the number of patients waiting for over six months for outpatient, inpatient and day case appointments, after first referral, made up 46% of the total and accounted for 6% of the population (Figure 1).

These pressures, as highlighted in the 2022 OECD Economic Survey of Ireland, partly stem from a highly centralised health system, largely based on costly hospital services. Moreover, unique among European OECD peers, Ireland only provides a proxy for universal coverage of primary care to about 30-40% of the population, through a complex scheme of age-based and means-tested medical cards. Hence, the bulk of the remaining population purchases voluntary private insurance to finance private or semi-private care performed also in public hospitals. This has resulted in a de facto two-tier health system, in which better-off holders of private insurance gain quicker access to specialist consultations or diagnostics, while poorer patients remain stuck in waiting lists for longer, even if formally eligible for free care.

Figure 1. Waiting times for key healthcare services are substantial

Number of persons waiting for a scheduled date for outpatient, inpatient and day case appointments by waiting time, % of population¹

At the same time, past underinvestment following the global financial crisis, has weighed on the efficiency of healthcare delivery. The legacy of relatively outdated hospital infrastructure, low numbers of hospital beds, associated with markedly high bed occupancy rates (Figure 2), and weak intensive care units facilities put pressure on the health system at the outset of the pandemic. Increased resources and swift reorganisation of processes, coupled with strong containment measures and a successful vaccination campaign helped avoid the worse. Nevertheless, the COVID-19 crisis strained waiting lists for “regular” care services further and pushed public health spending up to about 1/5 of total public expenditure in 2020 (Figure 3). In this context, enhancing public spending efficiency will be paramount to the financial sustainability of Ireland’s health system.

Figure 2. Hospital capacity constraints were significant at the onset of the pandemic

2019 or latest year available

The government’s wide-ranging reform agenda, termed Sláintecare, aims to broaden the coverage of universal care and enhance the cost-efficiency of health services. The current system is overly centralized, complex and biased towards expensive hospital-based treatments. Hence, the goal to implement an effective integration across primary, community, long-term and social care services to move away from expensive hospital care is welcome. Accelerating the implementation of the Single Assessment Tool, a key IT-based needs assessment to support enhanced operational integration across all health and social long-term care providers, would enable large efficiency gains and the provision of more effective person-centred care services. Integrated services should reduce the number of visits to emergency departments as well as of hospital admissions, which can help address the challenge of long waiting lists.

Figure 3. Government health spending is high

Percent of total government spending, 2020 or latest

The creation of six new regional health areas, which will be responsible for the planning, management and delivery of integrated and patient-centric care based on local population needs, is an important step towards more decentralised integrated care. Their success will depend on a suitable funding system and data availability. The funding system is currently fragmented across care settings and lacks transparency, limiting the traceability of healthcare spending. The planned adoption of a population-based resource allocation funding model to ensure regional health areas’ annual budgets reflect the specificities of local care needs, should be prioritised. This can improve financial reporting and management via higher transparency, spending traceability and accountability, while strengthening incentives to improve corporate governance and equity in health outcomes.

Monitoring the health system and achieving efficiency gains will also require greater use of digitalisation and an improved digital infrastructure. Tracking of patients across care services is currently hampered by the lack of national electronic records, as key available healthcare datasets are not interlinked. The information potential of anonymised patients’ data is largely unexploited, partly because of insufficient institutional resources and technical skills. Accelerating the process towards the adoption of a unique health identifier could enhance the monitoring of cost-effective health service utilisation and enable better-informed decision making at all levels. Centralising the national governance data framework in a single independent body may be of further help. By taking on the responsibility to link available health-related data collections, protect data confidentiality and ensure its secured sharing, the new body would be key in fostering the general trust in digital solutions needed for patients to agree with the treatment of their personal data.

References

Sicari P. and D. Sutherland (2023), “Health sector performance and efficiency in Ireland”, OECD Economics Department Working Papers, No. 1750, OECD Publishing, Paris, https://doi.org/10.1787/6a000bf1-en.

OECD (2022), OECD Economic Surveys: Ireland 2022, OECD Publishing, Paris, https://doi.org/10.1787/46a6ea85-en.

By Geoff Barnard and Seung-Hee Koh, OECD Economics Department

The rise in inflation over the past two years in economies around the world has created major challenges for policymakers. One key uncertainty in addressing these challenges has been whether the surge in inflation has primarily reflected demand factors or negative supply shocks. That question cannot be answered with a high degree of precision or certainty, but some techniques exist for estimating the contributions of demand and supply factors. The latest OECD Economic Outlook (OECD, 2022) reports on an exercise to do this for eight OECD countries.

The approach applied in that exercise is based on that of the Federal Reserve Bank of San Francisco, which uses US monthly price and volume personal consumption expenditures (PCE) data to distinguish between items where price and volume shocks move in the same direction and those where they go in opposite directions (Shapiro, 2022a and 2022b). Shocks to prices and volumes in a given month are identified by running vector autoregressions (VARs) for the 10-year period ending in that month for prices and volumes of each item and inspecting the residuals of the respective regressions¹. The presumption is that price and volume residuals with the same sign reflect demand – greater demand pushes up both prices and volumes and vice versa for lower demand – while residuals with opposite signs correspond to supply shocks – lower supply means a reduction in volume but an increase in price.

In addition to items where price changes are identified as clearly demand-driven or supply-driven, an intermediate range, labelled “ambiguous”, where price and/or volume residuals are too small to be considered significant, is also identified – a threshold is set that results in approximately 20% of movements on average being classified as ambiguous. The contributions of the three categories – demand-driven, supply-driven and ambiguous – sum to total headline PCE inflation.

Other OECD countries do not have matching disaggregated monthly price and volume data for total personal consumption, although several have information for a subset of consumer spending – typically retail trade. An alternative approach is to use detailed quarterly national accounts data for total household consumption expenditure by consumption purpose (COICOP). The degree of quarterly expenditure disaggregation is highest in the United States, where the PCE data have 136 categories, but lower in the other cases: the number of categories available in the quarterly national accounts data for the other seven countries for which this exercise was undertaken in the Economic Outlook varies from 11 for Denmark to 110 for the United Kingdom.

In all countries, both supply and demand factors are found to have pushed inflation up since mid 2020 (Figure 1), highlighting the current difficulties faced by policymakers in assessing the drivers of higher inflation. The proportion of annual headline inflation accounted for by demand-driven items in the second quarter of 2022 ranges from less than one-quarter in Korea to around half in the United Kingdom and Canada. Supply driven inflation is estimated to account for roughly half of total inflation on average in the eight countries shown, but well over half in Denmark, Korea and Sweden. In general, both supply- and demand-driven contributions have increased in recent quarters, with Korea being an exception: there the demand-driven component peaked in the second quarter of 2021 and has subsequently declined. The United States has had a broadly stable demand-driven contribution to year-on-year inflation for several quarters, which is in line with the picture portrayed by the monthly estimates by the San Francisco Fed.

Compared to the immediate pre-pandemic period, when headline inflation was close to central bank objectives in all these economies, the rise of inflation has generally reflected both supply-driven and demand-driven factors. The increase in the contribution of supply-driven inflation has been relatively small in Canada and the United Kingdom. For demand-driven inflation, the increase in the contribution relative to 2019 was largest in the United Kingdom (around 4 percentage points), and also relatively large in Canada and France.

There are several caveats to bear in mind when considering the results of this exercise. First, the method used identifies the price change for each item in a given period as being primarily demand- or supply driven, but in most cases a mix of supply and demand factors will be operating, even when the exercise allocates the item to the demand-driven or supply-driven category. Also, the pandemic period is clearly atypical, with special factors at play which may make the results less reliable. Finally, the difference in the degree of disaggregation in the available data may limit the extent to which valid conclusions can be drawn from cross-country differences.

Figure 1. Contributions of supply- and demand-driven inflation to headline inflation in selected OECD economies

Decomposition of contributions to year-on-year headline inflation

1. A two-equation VAR of prices and quantities: p_i,t= Z_{i, t-1}γ+ε_i,t^p and q_i,t= Z_i,t-1γ+ε_i,t^q was estimated where p_i,t and q_i,t are the logs of the price and quantity indices respectively of category i in quarter t, Z_i,t-1 is a vector of 4 lags of the log price and quantity indices of category i in quarter t and ε_i,t^p and ε_i,t^q are the price and quantity residuals for category i in quarter t. The equations were estimated over a 10-year rolling window for the period 2005Q4-2022Q2 or 2022Q3. The supply-driven, demand-driven and ambiguous contributions to year-on-year inflation are computed as a weighted sum of the latest four quarterly contributions.

References:

OECD (2022), OECD Economic Outlook, Volume 2022 Issue 2, OECD Publishing, Paris.

By Tim Bulman and Timo Leidecke, OECD Economics Department

Greece has rebounded from the COVID crisis. The tourists enjoying the beaches, restaurants and museums across Greece over the summer and as late as November are among the more visible signs of this rebound. Their numbers and spending approached the historical pre-COVID peak of 2019. 

There are signs across Greece that the recovery has been much broader and deeper than a wave of post-lockdown holiday-makers. The ancient port of Piraeus is vibrant with record levels of activity and construction as wharves are extended and new cargo handling facilities are added. In the offices surrounding it, shipping agencies and fleet owners have been working long hours to help the global economy navigate the shifting demands and logistical complexities of the COVID crisis. 

In sparkling new office parks and research centres around the northern centre of Thessaloniki, investments have been signed to develop pharmaceutical research and production, and to set-up world-leading software and IT development centres. 

Across the country, hundreds of the projects laid out in the Greece 2.0 Recovery and Resilience Plan are already improving the quality of infrastructure and the business environment.

However surging energy and other primary commodity prices, especially since Russia’s invasion of Ukraine, have generated strong headwinds that have slowed Greece’s economy. The newly-launched 2023 Economic Survey of Greece projects that growth will slow from 5.1% in 2022 to a little over 1% in 2023.

Greece’s recovery from the COVID crisis has been strong

How can Greece successfully navigate through these headwinds, and set course for sustained growth and improving living standards? The Economic Survey identifies four priorities for Greece:

1. Healthy public finances. Keeping public debt ratios on a downward path is central for Greece achieving investment-grade sovereign debt rating, and with it readier access to less expensive financing for investment. Maintaining a primary budget of 1.5% to 2.0% of GDP would support better debt dynamics. Greece can sustain such surpluses while better supporting activity. On the one hand, it can reallocate funding to spending that best supports growth, such as infrastructure, education and active labour market policies, while limiting other areas such as the overall public payroll costs. On the other, maintaining revenues is also important. Focusing future tax rate changes on expanding the base of taxpayers, limiting tax expenditures and raising compliance, can maintain revenues while reducing the economic weight of taxes.

2. Financing for investment. The Hercules securitisation scheme is helping the main banks clear their backlog of non-performing loans. Much more efforts will be required to rebuild banks’ capital bases such that they re-start financing new investment. Developing non-bank financing can help circumnavigate the problems in the banking sector, better support smaller and medium-sized firms’ growth, and develop new businesses. Ensuring financial market regulations support transparency and information sharing, can help develop these sources.

3. A dynamic business environment that stimulates investment. A decade of reforms and the Greece 2.0 measures are greatly improving Greece’s business environment, as recognised by OECD indices and other global ratings. Ensuring these reforms improve outcomes on the ground, and addressing the remaining weaknesses, however, is a marathon. Lower entry barriers, prioritising professional services, and strengthening the Hellenic Competition Commission and other economic regulators to improve competition can raise the dynamism of Greece’s markets. Improving the legal system’s effectiveness is central for firms in Greece, and fully integrating the justice system in the different measures to review and simplify all administrative processes could help accelerate progress.

Strengthening private investment would support long-term growth

Private business investment, 2021

4. A workforce ready for emerging opportunities. The post-COVID rebound has lifted the total number of people in work to the highest level since 2010 – and has even led to shortages of skills in sectors ranging from construction to IT. Promoting flexible work arrangements and encouraging young fathers to take up the new paid paternity leave, would activate more women, including in areas where skills are in short supply. The ongoing reforms to the public employment service, particularly to develop mutual obligation requirements centred on tailored personal action plans for the unemployed, can help them enter work. In the longer term, engaging more adults (both young and mature age) in higher-quality re-skilling programmes can ensure that the workforce has the skills to make the most of the opportunities offered by the digital and green transitions.

These measures will help Greece shift from the post-COVID rebound onto a path of sustained growth. This will be key for Greece to address the fundamental longer-term challenge of achieving a net-zero greenhouse gas emission economy and adapting to a changing climate. Priorities to address this challenge will be the topic of a forthcoming ECOSCOPE blog and an Economics Department Working Paper.

References:

OECD (2023), OECD Economic Surveys: Greece 2023, OECD Publishing, Paris, https://doi.org/10.1787/19990286.