by Naomitsu Yashiro, Latvia Desk, OECD Economics Department

Latvia is a dynamic economy that joined the OECD in 2016. It has enjoyed strong economic performance in recent years and its macroeconomic policy is sound. Nevertheless, Latvia’s per capita GDP is still only about a half of the average level of high income OECD countries (Figure 1). Latvia also faces one of the fastest declines in the working-age population in the OECD due to ageing and outmigration. Hence, strong productivity growth is crucial for Latvia to ensure continued catch up of living standards with higher income OECD countries.

Although Latvia’s labour productivity growth is among the highest in the OECD, it decelerated considerably after the crisis mostly due to a smaller contribution of investment (Figure 2). Business-based innovation is weak and the use of digital technologies lags considerably behind other OECD countries despite fast Internet connection speed. A slow take-up of new technologies is due to shortages of qualified workers and weak knowledge transfer from research institutions to firms. Furthermore, subdued bank lending, owing partly to low debt recovery in insolvency procedures and widespread informality, prevents productive firms from investing and growing larger.

The government has implemented reforms to align education
and training with labour market needs and promote science-industry linkages
with support from EU funds. It is also working hard to strengthen the capacity
of the judiciary and law enforcement agencies to fight economic crimes like tax
evasion and money laundering.  This
should help strengthen investor confidence and the ability of firms to better
document their income to obtain credit. The 2019
Economic Survey of Latvia calls for more investment in skills, innovation
and continued efforts to strengthen competition, in particular in sectors with
a strong presence of municipal or state-owned enterprises.

More needs to be done to strengthen wellbeing and social inclusion. Building on a recent reform that lowers taxes on lower-income workers the tax-and-benefit can be used more to reduce high income inequality. Access to healthcare is highly unequal owing partly to exceptionally high out-of-pocket expenditure (Figure 3). The government’s efforts to boost healthcare spending need to continue. Its recent decision to suspend a reform that would have threatened universal healthcare is also welcome.

The regional gap in public service quality and economic
opportunities is also large. The planned territorial reform will be an
excellent opportunity to merge municipalities, and improve the efficiency of
municipal service provision.  A shortage
of affordable housing hinders labour mobility and better job matches. More
public funding for affordable rental and social housing would help this.

Further reading:

• OECD (2019), OECD Economic
  Survey: Latvia 2019, OECD Publishing, Paris.

Par Laurence Boone, Cheffe économiste de l’OCDE

Il y a un an, l’OCDE avait
alerté sur le fait que les incertitudes entourant les échanges mondiaux et
l’action publique pouvaient être très préjudiciables à l’économie mondiale et
contribuer à creuser un peu plus encore la fracture entre les citoyens. Un an
plus tard, la dynamique économique mondiale s’est considérablement essoufflée
et la croissance devrait rester en berne, sur fond de persistance des tensions
commerciales. Les échanges et l’investissement ont fortement ralenti, en
particulier en Europe et en Asie. La confiance des entreprises et des
consommateurs s’est émoussée et la production manufacturière s’est contractée.
Face à cette situation, les conditions financières se sont assouplies du fait
que les banques centrales se sont orientées vers des politiques monétaires plus
accommodantes, tandis que la politique budgétaire exerçait un effet de relance
dans un petit nombre de pays. Parallèlement, la faiblesse du chômage et une
légère remontée des salaires dans les grandes économies continuent de soutenir
les revenus et la consommation des ménages. Dans l’ensemble cependant, les
tensions commerciales sont lourdes de conséquences et la croissance mondiale
devrait reculer pour s’établir à seulement 3.2 % cette année, avant
de se réorienter à la hausse pour atteindre 3.4 % en 2020, soit
un chiffre nettement inférieur aux taux de croissance observés ces trente
dernières années, ou même en 2017-18.

Alors que la phase
d’expansion était synchrone il y a dix-huit mois, on a vu apparaître entre les
secteurs et entre les pays des divergences reflétant l’exposition aux tensions
commerciales, la puissance des réponses budgétaires et les incertitudes politiques.
Durement frappé par le relèvement des droits de douane et par l’incertitude en
découlant quant à l’avenir des relations commerciales, le secteur
manufacturier, dans lequel les chaînes de valeur occupent une place
prépondérante, devrait rester peu dynamique. La progression de l’investissement
des entreprises, qui est aussi étroitement liée aux échanges, devrait marquer
le pas et être ramenée à 1 ¾pour cent par an sur la
période 2019‑20, contre 3 ½ pour cent par an environ
en 2017-18. Moins exposé aux soubresauts des échanges, le secteur des
services, qui est à l’origine de la majeure partie des créations d’emplois,
continue en revanche de bien résister. Dans le même temps, on observe un
ralentissement de la croissance dans la plupart des économies avancées, en
particulier dans celles où les échanges et le secteur manufacturier jouent un
rôle important, comme en Allemagne et au Japon où, selon les prévisions, la
croissance du PIB devrait être inférieure à 1 % cette année. Aux États-Unis
en revanche, la dynamique de la croissance a été maintenue grâce au soutien non
négligeable de la politique budgétaire, même si celui-ci tend à s’estomper. Des
divergences sont également apparues entre les économies de marché émergentes,
puisque l’Argentine et le Turquie bataillent pour sortir de la récession tandis
que l’Inde et d’autres économies bénéficient de l’assouplissement des
conditions financières et, dans certains cas, d’un soutien budgétaire ou
quasi-budgétaire.

En outre, l’économie
mondiale demeure largement dépendante d’un soutien continu des politiques
publiques. Dix ans après la crise financière, sur fond d’inflation modérée, les
bilans des banques centrales continuent de s’établir à des niveaux jamais
atteints, les taux d’intérêt, à court et à long terme, sont historiquement bas,
et la dette publique, sauf dans quelques cas, a beaucoup augmenté. À de
rares exceptions près, les économies de marché émergentes ont conservé des
volants de réserves importants. En résumé, les banques centrales ont à peine
normalisé l’orientation de leur politique monétaire et leur soutien demeure
essentiel.

Globalement, en dépit
d’un accompagnement des pouvoirs publics sans précédent au lendemain de la
crise financière mondiale, la reprise n’a pas été suffisamment vigoureuse et
durable pour se traduire par une hausse des salaires et une amélioration des
niveaux de vie. Depuis 2010, le PIB réel par habitant, qui est un
indicateur imparfait du niveau de vie, n’a augmenté que de 1.3 % par
an au niveau de la médiane de l’OCDE. Bien que le chômage soit à son plus bas
niveau depuis près de quarante ans, les salaires réels devraient progresser de
moins de 1.5 % par an sur la période 2019-20, soit moins que les
2 % enregistrés pendant les dix années ayant précédé la crise, dans une
économie moyenne de l’OCDE. En d’autres termes, l’amélioration des niveaux de
vie, dix ans après la crise, a été trop lente pour faire reculer sensiblement
les inégalités, lesquelles s’étaient creusées pendant les deux décennies
d’avant la crise. Pour le ménage médian par exemple, le rythme de progression
du revenu disponible réel a régressé depuis la crise dans les grandes économies
avancées, à l’exception des États-Unis.

L’horizon demeure
sombre et de nombreux risques jettent une ombre menaçante sur la croissance de
l’économie mondiale et le bien-être des citoyens.

• Premièrement,
  les perspectives de croissance déjà moroses sont exposées à un risque
  d’escalade des tensions commerciales qui pèse tant sur le continent américain
  que sur l’Asie et l’Europe. Les simulations présentées dans le premier chapitre
  de ces Perspectives économiques montrent
  qu’un regain de tensions entre les États-Unis et la Chine pourrait éroder de
  plus de 0.6 % le PIB mondial en l’espace de deux à trois ans.
• Deuxièmement,
  le secteur manufacturier et celui des services ne sont pas cloisonnés. Si, dans
  les services, l’activité a gardé son dynamisme, jouant un rôle d’amortisseur,
  il est peu probable qu’elle reste encore longtemps découplée de celle du
  secteur manufacturier. Plus d’un tiers des exportations manufacturières brutes
  est imputable au secteur des services qui est, directement ou indirectement, à
  l’origine de plus de la moitié des exportations mondiales. De plus, le secteur
  manufacturier est fondamentalement tributaire de l’investissement, qui non
  seulement est le moteur de la croissance et de l’emploi d’aujourd’hui, mais en
  outre détermine la croissance et les niveaux de vie de demain.
• Troisièmement,
  la Chine demeure une source de préoccupation, sachant que le déploiement
  d’instruments de politique monétaire, budgétaire et quasi‑budgétaire aura des
  effets sur l’activité qui sont incertains, mais que ces instruments pourraient
  en outre continuer d’alimenter la dette des sociétés non financières, laquelle
  atteint déjà un niveau record. Nous estimons qu’une diminution de 2 points
  de pourcentage de la croissance de la demande intérieure en Chine, qui se
  poursuivrait pendant deux ans et se conjuguerait à un regain d’incertitude,
  pourrait entraîner une baisse du PIB mondial de 1 ¾ pour cent la
  deuxième année.

• Enfin,
  la dette du secteur privé s’accroît rapidement dans les grandes économies.
  L’encours mondial des obligations émises par des sociétés non financières a
  presque doublé, en termes réels, par comparaison avec 2008, ressortant à
  près de 13 000 milliards USD, et la qualité de la dette se
  détériore, notamment en raison d’une hausse de l’encours de prêts à effet de levier.
  Un nouvel épisode d’instabilité financière pourrait éclater.

À l’avenir, les
tensions commerciales auront un impact négatif sur les perspectives, non
seulement à court terme, mais également à moyen terme, et nécessiteront une
action urgente des pouvoirs publics pour redonner du souffle à la croissance.
Il y a encore moins de deux ans, l’économie mondiale connaissait une phase
d’expansion synchrone, mais les difficultés marquant actuellement les relations
commerciales et le système commercial multilatéral fondé sur des règles font à
présent sortir la croissance mondiale de ses rails en générant un surcroît
d’incertitude qui déprime l’investissement et les échanges. Le processus de
mondialisation de l’après‑Seconde Guerre mondiale, porté par des accords
multilatéraux qui ont permis une ouverture toujours plus grande aux échanges,
se voit remis en question.   

Dans ce contexte, nous
en appelons aux gouvernants pour qu’ils fassent jouer tous les leviers d’action
à leur disposition. Tout d’abord, il est impératif, à partir d’un diagnostic
commun sur les enjeux commerciaux et en tenant compte de l’interdépendance des
économies, avec des chaînes de production qui s’étendent par-delà les
frontières, de relancer des discussions multilatérales sur le commerce. Ensuite,
dans les pays où la demande est en berne, comme dans ceux de la zone euro par
exemple, les pouvoirs publics devraient non pas s’en remettre encore et
toujours à la politique monétaire, mais profiter de la faiblesse des taux pour
accompagner les réformes structurelles par des mesures de relance budgétaire
dans les pays dont la dette publique est relativement modeste. Une action
combinée de ce type peut remédier à l’atonie de la croissance, accroître sa
résilience et doper l’activité à long terme, de manière durable et bénéfique à
tous. Les priorités devraient être l’investissement dans les infrastructures,
en particulier numériques, les transports et les énergies vertes,
l’amélioration des compétences et, plus généralement, la mise en œuvre de politiques
en faveur de l’égalité des chances. Ainsi, dans la zone euro, associer des
réformes structurelles visant à rehausser la croissance de la productivité
de 0.2 point de pourcentage par an pendant cinq ans à des mesures de
relance budgétaire sur trois ans, équivalant à 0.5 % de PIB, dans les
pays peu endettés pour financer des investissements publics, aurait pour effet
non seulement de dynamiser la croissance à court terme, mais aussi de faire
progresser le PIB d’environ 1 point à plus long terme.

Des réformes sont
également nécessaires pour recueillir les fruits de la transformation numérique
et les partager entre tous. Dans le chapitre spécial de cette édition des Perspectives économiques, sont analysés
les changements induits par cette transformation numérique et les mesures
devant être prises pour que celle-ci se traduise par une croissance plus forte
et plus inclusive. Les technologies numériques influent sur la manière dont les
entreprises produisent des biens et des services, innovent et interagissent
avec d’autres entreprises et avec leurs salariés, les consommateurs et
l’administration. Ces technologies offrent un vaste potentiel d’amélioration de
la productivité dans les entreprises et, in
fine, des niveaux de vie, mais ces gains sont, jusqu’à maintenant,
décevants. La productivité du travail a considérablement ralenti dans les pays
de l’OCDE au cours des dernières décennies et seule une poignée d’entreprises
« superstars » bénéficie aujourd’hui de la transformation numérique.
La faiblesse des gains de productivité explique la croissance timide des
salaires, cependant que les tâches répétitives exécutées par une main-d’œuvre
peu ou moyennement qualifiée sont de plus en plus automatisées. Ces évolutions
ont de profondes répercussions sur les niveaux de vie et l’inclusivité. 

Les pouvoirs publics
et les entreprises devront mettre en œuvre toute une série de mesures pour que
la transition numérique soit efficiente et inclusive. Mettre à profit cette
transition exigera d’opérer des changements dans les pratiques des entreprises,
l’organisation du travail et l’éventail des compétences, qui nécessiteront un
vaste redéploiement des ressources dans, et entre, les entreprises et les
secteurs. Ces changements peuvent prendre du temps et entraîner des coûts
d’ajustement transitoires dont peuvent pâtir les groupes vulnérables. Des
réformes s’imposeront donc dans divers domaines : l’éducation, pour
améliorer les compétences cognitives des individus ; la formation, pour
rehausser le niveau de compétences techniques et managériales ; l’accès des
entreprises à des solutions de financement, pour favoriser l’investissement,
notamment en fonds propres, dans des actifs incorporels et dans la R-D ;
l’évolution de la politique de la concurrence, pour adapter le cadre
réglementaire aux changements de modèle économique résultant de la
transformation numérique et assurer une affectation efficiente des ressources.
Si les pouvoirs publics et les entreprises prennent des mesures pour remédier
aux défaillances constatées, l’adoption des technologies numériques et les
gains générés par la transformation numérique pourraient bien, en définitive,
être à la hauteur de nos espérances.

Les incertitudes relatives aux échanges mondiaux et à l’action publique ayant érodé la confiance des entreprises et des ménages, certains risques qui pesaient sur la croissance mondiale se sont concrétisés au cours de l’année écoulée. La croissance devrait rester en berne sur fond de persistance des tensions commerciales conjuguée à une aggravation des inégalités. Les gouvernements peuvent, et doivent, agir ensemble pour rétablir une croissance qui soit durable et partagée entre tous.

Accedez aux Perspectives Économiques de l’OCDE

by Sonia Araujo and Lisa Meehan, Mexico Desk, OECD Economics Department

The Mexican economy has benefited from strong fundamentals. A strong macroeconomic policy framework has underpinned moderate growth, in the face of a number of shocks the economy has experienced in the recent past. Monetary policy has successfully tamed inflation and prudent fiscal policy has halted the rise in the debt-to-GDP ratio. The financial system is strong and a number of financial buffers in the form of stabilisation funds and international reserves cushion against tail risks.

The macro framework has brought stability to the economy but
it has not been enough to deliver strong growth. GDP growth has been moderate,
particularly compared with other emerging market economies, averaging only 2.2%
a year since 2009. The relatively modest growth that has occurred chiefly
reflects a demographic bonus, as Mexico’s young population entered the labour
market. Mexicans work far longer days than anyone else in the OECD.  But owning to low productivity, Mexico’s GDPpc
remains the lowest in the OECD as the country has not converged to higher
living standards (Figure 1). Mexico has the macro right, now it is time to work
on the micro.

The 2019 OECD Economic Survey of Mexico looks into policies that will make growth more robust and equitable. The main findings are:

• Maintaining macroeconomic stability is key to
  smooth adjustment to shocks in the context of heightened uncertainty and to
  provide confidence to economic agents in the medium term.
• Implementing a comprehensive strategy to boost
  productivity and inclusiveness calls for an integrated package of reforms
  across several policy areas as policy complementarities matter.
• Increasing equity and providing opportunities
  for all, including women, indigenous populations, and lagging regions should be
  an integral element of the reform agenda to solve Mexico’s stark  disparities in economic dynamism, poverty and
  well-being (Figures 2 and 3).

Many reforms are able to simultaneously lift growth and
share the benefits more widely. These are: raising educational outcomes,
enhancing women’s participation in the labour market, improving incentives to
job and business formalisation, improving regulations to spur competition,
boosting infrastructure, further enhancing trade and participation in global
value chains, particularly SMEs. The redistributive role of fiscal policy also
needs strengthening.

Stronger institutions are key to attaining stronger growth and increasing fairness and opportunities for all. Reducing corruption, insecurity and crime would boost economic activity and especially benefit the poor and underprivileged. They are also an integral ingredient to making all other reforms work. Mexico should continue efforts to reduce crime and impunity and complete the implementation of the National and Local Anticorruption Systems reforms and monitor the results, especially focusing on the capacity of the different states to strengthen their institutional arrangements.

Further reading:

OECD (2019), OECD Economic Surveys: Mexico 2019, OECD Publishing, Paris. https://doi.org/10.1787/a536d00e-en

by Antoine Goujard and Pierre Guérin, France Desk, OECD Economics Department

The French economy is slowing, but less
than its neighbours. The French authorities have engaged a significant reform
agenda that should be complemented with particular care for inequality issues. Income
per capita growth has lagged the euro area average (Figure 1). The 2019 OECD
Economic Survey,
launched on 9 April 2019 by the OECD Secretary General and the
Minister of Finance, points that there is a need to boost growth and ensure
that the gains of reforms reach low-income households.

Reforms need to be beneficial to all and improve the prospects of low-income populations.
The recent “yellow vest” demonstrations have shown that gains of reforms
seem elusive for part of the population. Income per capita when corrected by
household composition has been flat for the past ten years (Figure 2). Employment
rates, notably for the youth, low skilled and older workers are low, and
economy-wide productivity has declined as in many other OECD countries.
Moreover, weak social mobility tends to perpetuates economic and social
situations from one generation to the next, despite the relatively low poverty
rate after taxes and transfers (Boone and Goujard, 2019).

What will it take to reach more
sustainable growth and make sure that it benefits all?

The
government’s reform agenda is significant. The “PACTE” law would strengthen
business dynamism and firm growth. Comprehensive labour reforms, lower business
and labour taxes and a welcome productivity-enhancing public investment plan would
help raise medium-term growth and boost employment. Spending reviews and a
planned pension reform are set to increase the effectiveness of public
expenditures and make room for tax cuts, while preserving public investment.
OECD estimates, covering a broad part of ongoing reforms and based on the
experience of other OECD countries (Akgun et al., 2017; Causa et al. 2016),
show that, if fully implemented, these measures could boost GDP per capita by
3.2% at a ten-year horizon and would mostly benefit middle- and lower-middle
income households in the medium term (Figure 3).

Looking
forward, France should capitalise on this reform agenda and take further
measures to increase high-quality jobs, improve social mobility and raise
public spending efficiency. Additional measures could do much to boost employment and
productivity, and to ensure higher equality of opportunity, while lifting the
average annual growth rate and helping to reduce firmly the public debt-to-GDP
ratio. Such measures could push GDP per capita gains to 5% at a ten-year
horizon. This is among the key policy insights of the OECD’s 2019
Economic Survey of France:

• Raising
  well-being will depend on strengthening skills and greater inclusion of
  low-skilled workers in the labour force. This requires increasing
  the quality of education from an early age and reforms to ensure high-quality lifelong
  training programmes benefit everyone. Regularly evaluating vocational training
  and subsidised job programmes, will improve their quality. Increasing
  the relative cost of short-term hiring and reforming the unemployment insurance
  system would reduce incentives for recurrent short-term employment periods and
  unemployment spells that weigh on the career prospects of low-skilled and
  younger workers.
• Continuing
  to reduce administrative barriers to entry and unduly restrictive regulations
  will raise competitive pressures and ensure favourable conditions for young and
  dynamic firms. Continuing to reduce the administrative burden could
  ease firm entry and growth. Moreover, entry and conduct regulations remain
  stringent in several professional services – such as accountants, notaries and
  pharmacists – weighing on productivity and employment. To ensure such
  regulations are in the public interest, reviewing existing regulations from a
  competition perspective would be helpful.
• Reducing
  the public spending-to-GDP ratio is needed to improve the fiscal position, and
  lower tax rates in the long run, particularly on labour.
  Government spending policies should focus on ensuring investment and social
  spending are better targeted to increase efficiency. Streamlining the tax system would also
  support economic activity. Reviewing some narrow-based low-revenue taxes
  that affect businesses would simplify the tax system. VAT exemptions and
  reduced rates are also sizeable and some of them benefit too little low-income
  households.

References

OECD (2019), OECD Economic
Surveys: France 2019, OECD Publishing, Paris. http://www.oecd.org/eco/surveys/france-economic-snapshot/

Boone, L. and A. Goujard
(2019), France, inequality and the social
elevator. https://oecdecoscope.blog/2019/02/25/la-france-les-inegalites-et-lascenseur-social/.

Akgun, O., B. Cournède
and J. Fournier (2017), “The effects of the tax mix on inequality and growth”, OECD Economics Department Working Papers,
No. 1447, OECD Publishing, Paris, https://dx.doi.org/10.1787/c57eaa14-en.

Causa, O., M. Hermansen
and N. Ruiz (2016), “The Distributional Impact of Structural Reforms”, OECD Economics Department Working Papers,
No. 1342, OECD Publishing, Paris, https://dx.doi.org/10.1787/5jln041nkpwc-en.

par Antoine Goujard et Pierre Guérin, Bureau de la France, Département Économique de l’OCDE

L’économie française ralentit, mais moins que ses voisins. La France a lancé un programme de réformes significatif, auquel elle doit associer un soin particulier aux inégalités. En effet, le revenu par habitant a progressé moins vite que dans la moyenne de la zone euro (Graphique 1). L’étude économique de l’OCDE : France 2019, lancée le 9 avril 2019 par le Secrétaire général de l’OCDE et le ministre de l’Économie et des Finances, montre qu’il est nécessaire de continuer de stimuler la croissance et de faire en sorte que les gains des réformes atteignent les ménages les plus modestes.

Les réformes doivent profiter à tous et améliorer les perspectives des ménages à faibles revenus. Les manifestations des « gilets jaunes » ont montré que les gains des réformes en cours n’étaient pas perçus par une partie de la population. Le revenu réel par habitant corrigé de la structure des ménages est resté inchangé depuis dix ans (Graphique 2). Les taux d’emploi, en particulier chez les jeunes, les travailleurs peu qualifiés et âgés, sont faibles et la productivité de l’ensemble de l’économie a diminué, comme dans de nombreux autres pays de l’OCDE. De plus, la faible mobilité sociale tend à perpétuer les situations économiques et sociales d’une génération à l’autre, malgré un taux de pauvreté relativement bas après impôts et transferts (Boone et Goujard, 2019).

Comment atteindre une croissance plus durable et s’assurer qu’elle profite à tous ?

Le programme de réforme du gouvernement est ambitieux. La loi Pacte devrait renforcer le dynamisme de l’économie et la croissance des entreprises. Des réformes importantes du marché du travail, une réduction des prélèvements sur les entreprises et le travail et un plan d’investissement public favorable à l’amélioration de la productivité devraient aussi contribuer à stimuler la croissance et l’emploi à moyen terme. Les revues de dépenses et la réforme des retraites envisagée devraient renforcer l’efficacité des dépenses publiques et donner des marges de manœuvre pour réduire les impôts, tout en préservant l’investissement public. Les estimations de l’OCDE, qui couvrent une grande partie des réformes en cours et reposent sur l’expérience d’autres pays de l’OCDE (Akgun et al., 2017 ; Causa et al., 2016), montrent que si elles étaient pleinement mises en œuvre, ces mesures pourraient augmenter de 3,2 % le PIB par habitant à un horizon de dix ans et profiteraient principalement aux catégories de revenus moyenne et moyenne inférieure à moyen terme (Graphique 3).

À l’avenir, la France devrait capitaliser sur ce programme de réformes et prendre de nouvelles mesures pour augmenter le nombre d’emplois et leur qualité, améliorer la mobilité sociale et accroître l’efficacité des dépenses publiques. Des mesures supplémentaires pourraient grandement contribuer à stimuler l’emploi et la productivité et garantir une plus grande égalité des chances. En relevant le taux de croissance annuel moyen, elles aideraient aussi à inscrire la dette publique rapportée au PIB sur une trajectoire résolument descendante. De telles mesures pourraient porter les gains en termes de PIB par habitant à 5 % à un horizon de dix ans. C’est l’une des conclusions des principaux éclairages sur l’action publique de l’étude économique de l’OCDE : France 2019 :

• L’amélioration du bien-être dépendra du renforcement des compétences et de la plus grande inclusion des travailleurs peu qualifiés dans la population active. Cela nécessite d’accroître la qualité de l’éducation dès le plus jeune âge et de mettre en œuvre des réformes pour garantir des programmes de formation continue de haute qualité profitant à tous. Une évaluation régulière des programmes de formation professionnelle et d’emploi subventionné améliorera leur qualité. Augmenter les coûts relatifs des contrats courts et réformer le système d’assurance-chômage réduiraient les incitations aux périodes récurrentes d’activité partielle et de chômage qui pèsent sur les perspectives de carrière des travailleurs peu qualifiés et des jeunes.

• Poursuivre la réduction des obstacles administratifs à l’entrée et des réglementations indûment restrictives augmentera les pressions concurrentielles et garantira des conditions plus favorables aux entreprises jeunes et dynamiques. Il faut continuer d’avancer sur la simplification administrative pour faciliter l’entrée et la croissance des entreprises. En outre, les réglementations à l’entrée et certains codes de conduite restent stricts dans plusieurs professions règlementées – tels que les comptables, les notaires et les pharmaciens – ce qui pèsent sur la productivité et l’emploi. Pour veiller à ce que ces réglementations soient dans l’intérêt du public, il serait utile de revoir les réglementations existantes sous l’angle de la concurrence.

• Une réduction du ratio des dépenses publiques au PIB est nécessaire pour améliorer la situation budgétaire et réduire les taux d’imposition à long terme, en particulier sur le travail. Les politiques de dépense du gouvernement devraient viser à ce que les investissements et les dépenses sociales soient mieux ciblés pour augmenter l’efficacité de l’administration publique. Simplifier le système fiscal soutiendrait également l’activité économique. Un certain nombre d’impôts à faible rendement affectent les entreprises et devraient être revus afin de simplifier le système fiscal. Les exonérations de TVA et les taux réduits sont considérables et certains d’entre eux bénéficient à trop peu de ménages à faible revenu.

Bibliographie

OCDE (2019), Études économiques de l’OCDE : France 2019, Éditions OCDE, Paris. https://doi.org/10.1787/10f0135f-fr

Boone, L. and A. Goujard (2019), La France, les inégalités et l’ascenseur social. https://oecdecoscope.blog/2019/02/25/la-france-les-inegalites-et-lascenseur-social/.

Akgun, O., B. Cournède and J. Fournier (2017), “The effects of the tax mix on inequality and growth”, OECD Economics Department Working Papers, No. 1447, OECD Publishing, Paris, https://dx.doi.org/10.1787/c57eaa14-en.

Causa, O., M. Hermansen and N. Ruiz (2016), “The Distributional Impact of Structural Reforms”, OECD Economics Department Working Papers, No. 1342, OECD Publishing, Paris, https://dx.doi.org/10.1787/5jln041nkpwc-en.

By Laurence Boone, Mauro Pisu and Tim Bulman, OECD Economics Department

disponibilie anche in Italiano

1. Italy has been implementing the OECD’s recommendations for years, yet the economy has been weak. Should not Italy change approach?

Italy
has implemented some of the recommendations of past OECD Surveys and these have
been bearing fruit. For example:

• Past
  Surveys have recommended reducing social security contributions to raise
  employment. Such a cut was implemented on a temporary basis from 2015 and
  employment rose by about 3 percentage points. Employment growth started slowing
  when the reductions in social security contributions gradually expired.
• Past
  Surveys have recommended strengthening innovation policies and incentives for
  innovative investment. The Industry 4.0 programme has introduced fiscal
  incentives for investments in digital technologies, which have increased
  rapidly since then.
• Past
  Surveys have recommended improving public procurement and fighting vigorously
  corruption. Public procurement procedures have been restructured and harmonised
  across the country by reducing the number of contracting authorities, resulting
  in large cost savings; the anticorruption authority (ANAC) has taken on an
  important role in preventing corruption and is now a model for other countries.

There
are many areas where In Italy has not taken action following OECD
recommendations. For instance, past Surveys have recommended to:

• Accelerate
  and streamline bankruptcy procedures and make it easier to restructure
  insolvent firms. The new insolvency code has still to be approved by parliament.
• Increase
  R&D spending. The R&D spending is still one of the lowest across OECD
  countries (even after accounting for the effects of the Industry 4.0 plan).
• Increase
  available places in childcare facilities. They are low and one of the reasons
  why so few women work in a number of regions.
• Increase
  public investment, which has kept declining.
• Increase
  spending on and restructure public employment services. This process is just
  starting.
• Strengthen
  the apprenticeships system by introducing minimum training quality standards. Apprenticeships
  are widespread in Italy but their educational content remains limited.

2. What is the OECD’s view of the Reddito di Cittadinanza?

The Survey welcomes the large increase in
resources to reduce poverty through the Reddito di Cittidanza. The measure is
consistent with previous OECD recommendations and will help to direct a larger
share of social transfers to people in poverty.

However, the Reddito di Cittadinaza could be improved and contribute more to boosting employment. Its current level of benefit is high by international standards and higher than the wages of many jobs, especially in poorer regions. This will discourage beneficiaries from working in the formal sector.*

To address this problem, the Survey
suggests lowering the Reddito di Cittadinanza by 30-40%, tapering off the benefit as beneficiaries start working and
their labour income grows, and introducing an in-work benefit system for
low-wage workers to raise their take-home pay.

Overall the changes the OECD proposes for
the Reddito di Cittadinanza, along with other changes to the personal income
tax and social benefits, will cost about EUR 2.7 billion more than what
the government already budgeted for the Reddito di Cittadinanza. The OECD is
then recommending the Italian government to spend more on measures to lower
poverty and increase employment than what the government has planned on doing.

The Survey also welcomes the increase in spending on public employment services planned for 2019-20 as they will be vital to ensure those receiving the Reddito di Cittadinanza engage in job search and training programmes. However, the OECD warns that other countries’ experiences show that improving employment services takes time. The OECD recommends developing a multi-year implementation plan based on enhancing skills of employment service staff, and additional investment in IT and profiling tools is needed.

3. What is wrong with encouraging early retirement to free up job opportunities for young people?

The
new temporary early retirement scheme (“quota 100”) introduced with the 2019
budget will encourage people to retire earlier but its cost is high compared to
its benefits. The scheme will increase pension spending by EUR 20 billion in 2021
and by EUR 40 billion by 2025. Italy’s pension spending as a share of GDP is already
one of the highest among OECD countries, hampering the capacity of Italy to expand
public investment, including in education.

There is no evidence that early retirement schemes free up jobs for other workers. They would exacerbate Italy’s existing problem of an ageing population by accelerating the shrinking of the working age population. People with tougher physical jobs should nevertheless be shielded from an increase in the retirement age.

4. How can a minimum wage help provide quality jobs and good working conditions?

Italy has many specific minimum wages tied
to collective bargaining agreements. A general minimum wage would protect the low
skilled in sectors where workers have little bargaining power and would reduce
the risk of in-work poverty, which has continued to rise in Italy even during
the recovery.

The minimum wage would need to be set at a
rate that does not price low-skilled workers out of the labour market and would
need to reflect differences in productivity between regions.

Moreover, it should be set and reviewed by a transparent process and based on objective considerations about labour market conditions. To protect low-wage workers and make work pay more, the Survey recommends introducing in-work benefits for low-wage workers.

5. What does the Survey recommend on migration?

The
potential contribution of immigrants to Italy’s economy and society is huge. To
ensure the support and understanding of native-born Italians, well-managed and evidence-based migration policies and
debates are essential. It is also important to ensure that immigrants can
access training, so as that Italy benefits from the skills, entrepreneurship
and dynamism they bring.

Emigration from Italy has increased markedly since the start of the crisis, especially among young people. This is threatening sustained growth and living standards for the whole population. Policies to improve job prospects and salaries will increase Italy’s appeal as a place to live  and work. It will also contribute to the arrival of qualified immigrants from Europe and other parts of the world.

6. How can Italy become less vulnerable to higher interest rates?

Designing
and following a credible fiscal policy would enhance fiscal credibility and
lower further refinancing risks.

By implementing reforms and increasing the primary surplus Italy’s public debt would fall steadily. This would lower interest payments and free up resources to finance much needed investment, and fight poverty and social exclusion.

7. How vulnerable are Italy’s banks?

The
banking sector is in much better health than in 2017 when the previous OECD
survey was published:

• The
  stock of non-performing loans on banks’ balance sheets has declined drastically
  and continues to do so.
• Government
  interventions in the banking system have been effective and have cost far less
  than those in other countries.

But
more needs to be done to ensure banks can continue to support business,
especially small firms:

• The reduction in non-performing loans has been slower for small and medium-sized banks.
• The reform of cooperative and mutual banks has progressed but it is yet to be fully implemented.
• Keeping government bond yields low will safeguard the banks’ stability and capacity to provide credit.

8.What are the OECD’s economic forecasts for Italy?

Italy’s
gradual recovery stalled in late 2018. The Survey projects GDP to fall by 0.2%
in 2019, before growing by 0.5% in 2020. This largely reflects the sharp
slowdown that took place in 2018 when Italy’s economy contracted by 0.6% in the
third quarter and 0.4% in the fourth. The OECD projects the economy to recover
growth by the second quarter 2019.

The slowdown has been broad-based, involving lower growth
of exports, private consumption and investment caused by the slowdown in main
trading partners (particularly Germany) and policy uncertainty. On top of the
cyclical headwinds, Italy continues to suffer from low potential output growth
which is estimated to be between 0-0.5% per year. This also explains why
Italy’s projected growth rate is lower than elsewhere. While other countries
sneeze, Italy gets a cold.

The downward revision in projected GDP growth raises the projected public deficit from 2.1% of GDP in 2018 to 2.5% in 2019. The difference in growth forecasts explains most of the difference between the deficit projections presented in the Survey and the government’s projections of 2% of GDP in 2019.

9. How was the OECD Economic Survey of Italy prepared?

Italy
is a founding member OECD, which for more than 50 years has worked closely with
successive Italian governments to provide policy advice and share good
practices.

The
Economic Surveys are biannual publications that review countries’ economic
trends and performance and provide policy recommendations to raise growth and
social welfare. All OECD
member countries and some non-member countries undergo this review
exercise.

All OECD Economic Surveys are prepared by the OECD Economics Department in collaboration with the other, more specialised, OECD Directorates. They are reviewed by representatives of OECD member states governments, gathered in Economic and Development Review Committee (EDRC), including the country under review. The EDRC is at the core of the OECD’s peer review mechanism giving representatives of all 36 OECD member governments and the European Commission the opportunity to exchange views on economic policies and best practices. The Economics Department revises the draft survey based on comments received by the EDRC. The EDRC delegates then approve the final version for publication, ensuring a broad-based consensus.

This process allows a fruitful exchange of views and sharing of experiences among governments, to improve each other’s policies. The next Economic Survey of Italy is scheduled for 2021.

* The Survey does not fully take into account all the implementation rules of the Reddito di Cittadinanza as they have been defined only recently (Law 26/2019). Some of the implementation rules encourage the employment of beneficiaries of the Reddito di Cittadinanza, such as the subsidy to firms hiring workers from the rolls of the public employment services, others discourage it, such as setting a minimum (Reddito di Cittadinanza for a single person plus 10%) salary for job offers beneficiaries can rightfully refuse.

Further reading:

OECD (2019), OECD Economic Surveys: Italy 2019, OECD Publishing, Paris.

by Jon Pareliussen, Sweden Desk, OECD Economics Department

Swedish schools entered
the 1990s from a position of strength, as one of the top performers in early
international school surveys, including the OECD Programme for International
Student Assessment (PISA). School governance was centralised, and implemented locally
by regional education boards. A suite of sweeping reforms in the early 1990s
decentralised the school system from the central to the municipal level and
introduced choice, competition and management by objectives. The general
direction of reform was common to several OECD countries at the time, some of
which perform well in international comparison.

However, the reforms seem
to have contributed to weakening results in Sweden. Implementation was not optimal,
as some municipalities were ill-prepared to take on the new tasks, and key
stakeholders, notably among teachers and school principals, were opposing the
new model. The reform design also had weaknesses. Regional education boards
were closed and municipalities were granted full autonomy over school funding, weakening  governance structures considerably, at a time
when the introduction of liberal entry for private (for-profit and non-profit)
school providers would have called for stronger governance and control.  

The latest vintage of PISA points to a brighter future for Sweden’s schools. Average results improved, reflecting at least partly recent government interventions. However, today is no time for complacency, as Sweden’s educational performance only climbed back to close to the OECD average. Inequalities across pupils and schools are widening, and children are increasingly segregated into schools with pupils from similar backgrounds. These developments are partially driven by broader societal trends, notably increasing income inequality and immigration. Nevertheless, the school system reinforces segregation instead of counteracting it, running the risk of depriving pupils of equal opportunities.

Against this backdrop, the
special chapter of the OECD Economic
Survey of Sweden 2019 describes and analyses the challenges facing primary
and lower secondary education in Sweden. A set of recommendations is outlined,
focussing on three main areas:

• Economies of scale and the need for coordination
  calls for a partial recentralisation of some aspects of education policy. A
  centrally set minimum funding norm based on pupils’ socio-economic
  caracteritics would target funding better to needs and equity objectives. The
  norm should be non-binding and integrated in the existing system for cost- and income
  equalisation between municipalities, in line with established governance
  principles in Sweden. A regional arm of the central government governance
  structure should be re-built to enhance cooperation, improve skill development,
  promote continuous quality improvements, and instil accountability at every
  level of the school organisation.
• Competition and school choice can be powerful
  tools to improve school quality, but private interests in many cases differ
  from the interests of society as a whole. Effective regulation and governance
  therefore need to steer private providers to deliver for the public good. Ensuring
  that grades fairly represent pupils’ skills and knowledge would reduce
  information asymmetries. Private schools’ admission procedures need regulation
  to hold back school segregation. Municipalities should adjust how they assign
  pupils to schools by promoting more socially mixed pupil groups while toning
  down the current strong focus on proximity. Investments in new school capacity
  can help counteract segregation, notably if coordination between municipalities
  and private providers improves.
• High-quality teachers are a school’s most
  important asset, and Sweden faces teacher shortages. Teaching needs to become
  more attractive to recruit motivated and skilled students and retain high
  quality teachers in the profession. Better teacher education with a stronger
  research base and more teaching practice would help. Once in a job, teachers
  should face clearer career paths, incentives to progress, perform and take on
  challenging tasks as well as clear accountability for key outcomes, coupled
  with more cooperation, feedback and support between colleagues. A new regional
  arm of the central government governance structure should have a central role.

Sweden is now
moving towards a new round of school reforms, largely along these lines. A
clear lesson from the previous three decades of Swedish education history is
that reforming complex systems, warranted or not, can also be a risky
undertaking. The end result depends on reform design, implementation and intricate
interactions within the system undergoing reform as well as with the external
environment.

The need to adjust
to unintended consequences as complex reforms progress is inevitable, but accurately
identifying strengths, weaknesses and causality is challenging in hindsight,
and even more in real time. Not knowing exactly where you are and how you got
there reduces the likelihood of ending up where you want to be. Therefore, decision
makers should integrate experimentation, quantitative research and evaluations
into reform design in the next round of Swedish school reforms.

References:

OECD (2019), OECD Economic Surveys: Sweden 2019, OECD Publishing, Paris.

by Jens Arnold and Robert Grundke, Argentina Desk, OECD Economics Department

Over many decades, Argentina’s economy has been held back by weak policy settings and productivity growth has stalled amidst high volatility and recurrent crises. This explains why incomes have fallen behind those in Latin American and other countries over time (Figure 1). Following years of unsustainable economic policies, significant reforms have been undertaken since 2015 to strengthen growth and well-being.

Yet, the persistence of fiscal and external imbalances, which widened until 2018, led to a build-up of vulnerabilities (Figure 2). A combination of events, including a sharp decline of currency inflows due to an exceptionally poor agricultural harvest, loss of credibility in monetary policy following subsequent revisions of inflation targets and external events triggered a sudden capital flight during 2018. The value of the currency declined by almost 50% over the course of 6 months.

The authorities reacted in a timely and decisive manner by
accelerating the fiscal adjustment, tightening monetary conditions and seeking financial
support from multilateral lenders. Although subject to risks, the new fiscal
targets are expected to put public debt on a declining trajectory if met by
future governments. However, they imply a fiscal effort of almost 6% of GDP
during 2018-2020, which is a large consolidation in historical and
international comparison. The simultaneous fiscal and monetary contractions
will take their toll on growth in the short term, but the new macroeconomic
policies also reduce vulnerabilities and lay the foundations for more solid and
inclusive growth looking forward. After all, avoiding yet another economic
crisis is a precondition for raising investment and improving living standards.

While the economy has stabilised recently, more needs to be
done to ensure stronger growth and improvements in well-being for all
Argentinians over the years to come. More ambitious structural reforms would
have substantial growth pay-offs, according to OECD estimates. An ambitious
package of reforms on product and labour markets as well better institutions
and governance could raise growth by as much as 2 percentage points per year
over a period of 10 years, compared to a scenario of no additional reforms. Currently,
competition is weak in many sectors, and a lack of dynamism in industry
structures have implied that many jobs are trapped in activities with limited
potential for productivity and wage growth. Reducing both domestic barriers to
entry and fostering a stronger integration into the global economy will be key
for this. Among OECD member and partner countries, Argentina has one of the
most restrictive regulatory settings on product markets and maintains high
trade barriers. Continuing institutional progress, perhaps embodied most
visibly in the restoration of trust in national statistics and the rising
profile of the Anti-Corruption Office, will also be crucial.

These reforms are likely to transform the structure of the economy, which currently still reflects Argentina’s traditional inward-focus and may need to evolve to make the most of future opportunities. Over this transition, it is important for policies to protect workers, but not necessarily specific jobs or firms. Strengthening social protection, which is already quite effective in reducing income disparities, is one priority, but perhaps most importantly, offering quality training opportunities for workers who wish to seize new opportunities holds the key for mastering the transition successfully and achieve sustainable improvements in poverty and inequality.

References:

OECD (2019), OECD Economic Surveys: Argentina 2019, OECD Publishing, Paris, http://dx.doi.org/10.1787/eco_surveys-dnk-2019-en

by Laurence Boone, OECD Chief Economist, Giuseppe Nicoletti, Head of Division and Cyrille Schwellnus, Senior Economist, OECD Economics Department

A great economist, Alan Krueger, left us and the OECD Economics Department has lost a friend and a source of inspiration. Alan, a Princeton economist and former Chairman of the US Council of Economic Advisors, strongly influenced our thinking by spearheading a more evidence-based approach to economic policy-making both in his academic writings and as the Chairman of the OECD’s Economic Policy Committee during 2012-13.

One area in
which Alan’s academic work contributed to a rethink of the OECD’s policy advice
is the minimum wage. The original OECD Jobs Strategy of 1994 stated that minimum
wages often “end up damaging employment opportunities for unskilled labour”.
The wave of empirical studies sparked by Alan’s 1993 study with David Card on
the employment effects of minimum wages contributed to the more nuanced view in
the Jobs Strategy of 2006 that “a moderate legal minimum wage generally does
not undermine employment” and the explicit recommendation in the new 2018 Jobs
Strategy to “consider using a statutory minimum wage set at a moderate
level as a tool to raise wages at the bottom of the wage ladder, while avoiding
that it prices low-skilled workers out of jobs”. In their study, Alan and David Card use the
“natural experiment” of a moderate minimum wage increase in New Jersey in 1992,
showing that it had no effect on employment growth in fast-food restaurants
relative to neighbouring Pennsylvania where minimum wages had remained
unchanged at previous New Jersey levels.

Beyond triggering
a rethink of the OECD’s policy advice, Alan’s approach of using individual-level
data, “natural experiments” of policy reforms and differences in pre- and
post-reform developments in reformed and non-reformed areas contributed to a
paradigm shift in the way the OECD conducts empirical research. Classical
studies such his study
with Joshua Angrist using the quarter of birth as an instrumental
variable for years of schooling to estimate returns to education or the
estimation of the effect
of class size on student performance using experimental data demonstrated
the limitations of existing research on these long-standing and highly
policy-relevant questions. Today, much OECD research is based on individual-level
data and research designs inspired by these papers.

Alan’s work also sparked entire work programmes at the OECD.
His 1997
study with Joern-Steffen Pischke on the US employment miracle suggested
that higher labour market flexibility compared with European countries alone
could not explain its superior employment performance. They conjectured that
product market constraints contributed to low employment growth in many
countries, which motivated a major
OECD project that analysed the product and labour market interactions.
As a chairman of the OECD’s Economic Policy Committee, Alan popularised the
notion of the “Great
Gatsby curve” – which was partly based on OECD inequality estimates
– suggesting that higher income inequality in one generation constrains the
ability of people in the next generation to move up the economic ladder. This
consideration has contributed to the OECD refocusing its policy advice towards
a more inclusive growth model and a broader sharing of productivity gains.
Finally, Alan’s ideas on the importance of subjective well-being were
influential in the context of the OECD reflection on how to go beyond
GDP in measuring what counts for social and economic performance.

The OECD’s current research programme is testament to Alan’s
continuing influence. His recent work was concerned with the rise of
platform-intermediated work arrangements and analysed their effects on
productivity and whether they warranted a rethink
of labour market regulations and social protection. At the 2018
Jackson Hole conference, he also raised the issue of the macroeconomic implications
of employer
labour market power, highlighting the role of employer concentration
and anti-competitive practices such as non-compete clauses and anti-poaching
agreements. His work has not only been instrumental in putting remedies to
inequality issues in the spotlight but also helped disseminate them across
countries, putting  these issues high on
the OECD’s agenda. His undogmatic, evidence-based approach to policy advice
will provide guidance for years to come.

by Laurence Boone, OECD Chief Economist

The
global expansion is continuing to lose steam, and faster than anticipated a few
months ago. Growth in Europe has been particularly disappointing, as trade
growth both within the EU and with external partners has stalled. Business and
consumer confidence has plummeted in advanced economies as trade tensions
persist, high levels of policy uncertainty in Europe linger, and the pace of China’s
slowdown continues to raise concerns.

Global growth is projected to ease further from 3.6% in 2018 to 3.3% in 2019 and 3.4% in 2020 in our latest Interim Economic Outlook. It has been revised downwards in almost all G20 economies, with particularly large revisions in the euro area in both 2019 and 2020, driven by weakness in Germany and Italy, but also in the UK, Canada and Turkey. And the manufacturing sector seems to take a hit across the G20 on the back of trade tensions.

Some
factors are supporting growth, including easier financial conditions, with
major central banks having signalled a pause in monetary policy normalisation.
Also labour markets remain resilient for now, and wage growth is slowly picking
up, supporting household incomes and spending. However, worryingly, downside
risks continue to build up and growth could be much weaker if these risks were
to materialise.

Three major sources of risks are our main concerns.

First,
the continued uncertainty about trade policies remains a significant drag to
global investment, jobs and, ultimately, living standards. Even if the United
States and China conclude a trade agreement soon, we cannot exclude that other
measures will be implemented later in 2019, or that new restrictions will be
put in place in specific trade-sensitive sectors, such as cars. If the US imposed
tariffs on European cars, this would hit the European economies particularly
hard. Motor vehicle exports represent around 10% of total EU merchandise
exports to the United States and there are significant supply-chain linkages
within Europe that would spread the impact widely across countries and firms.

Second,
there is considerable uncertainty about the extent of China’s slowdown. The government has
put in place sizeable monetary and fiscal stimulus, including tax cuts and
infrastructure investment. However, the jury is still out regarding the effectiveness
of these fiscal measures. Meanwhile, corporate sector indebtedness is at very
high level, posing risks to financial stability.

China
has significantly contributed to global growth for the past two decades, so
that any sharper deceleration than expected would cascade to the rest of the
world. Countries in East Asia, commodity exporters and Japan would be
particularly hard hit by a sharp slowdown in Chinese demand growth. Reduced
demand in China would also affect global confidence adding significantly to
these costs, particularly in the advanced economies. Overall, taking direct trade
and confidence effects into account, our simulations suggest that a decline of
2 percentage points in the growth rate of demand in China for two years would
lower global GDP growth by over 0.5 percentage point in the first year already.

Third,
in Europe further weakness coming from China, Germany, Italy or the United
Kingdom could quickly spread to other European economies, given the importance
of trade linkages across the EU: EU countries trade more between themselves
than with the rest of the world, and very often goods or services are produced across
several countries. In the euro area, where most credit to firms is distributed
through banks, the weakness could be aggravated if sovereign yield increased,
raising banks funding costs and in turn reducing credit supply, dampening
investment and consumption, and ultimately jobs. Brexit is also an immediate
downside risk. We have already seen a clear dent in the growth rate of
investment in the UK since the Brexit referendum. And the costs of a no-deal
would be significant. According to our estimates, it could amount to 2% of GDP for
the United Kingdom by 2020 already.

One
final risk is that a sharper-than-expected slowdown in global growth could
trigger corporate bonds downgrades or even defaults. The outstanding stock of corporate
bonds at the end of 2018 was twice that in 2008 in real terms (at USD 13
trillion), the quality of outstanding debt has continued to decline, and there
are signs that corporate earnings growth has begun to slow. Significant bond
repayments are also due in emerging-market economies in the next three years,
especially in China.

In
this environment, governments must intensify multilateral dialogue on trade, and
in the euro area coordinate all levers of policy to avoid a sharper downturn.

Monetary policy normalisation has been on pause in the main advanced economies, and rightly so given rising uncertainty, weaker growth prospects and contained inflation. But monetary policy can and should not act alone.

Taking advantage of accommodative monetary conditions, euro area governments should coordinate fiscal and structural policies to revive growth both in the short and medium term. A moderate fiscal stimulus in countries that have fiscal space, targeted at public investment, would lift growth during the time it takes for structural reforms to deliver their full effect. On the structural front, there is ample scope for reforms to encourage innovation and business dynamism in Europe by streamlining permits and licenses, improving the transparency of regulation and reducing barriers to entry in network industries, professional services and retail sector. The co-ordinated fiscal and structural policy action would also benefit workers and give a necessary boost to wages. But more importantly, the coordinated action could lift confidence in governments’ capacity to reap the full benefits of the euro area. Euro area governments would show, that by acting together they can lift growth and improve the lives of all. This would demonstrate that Europe is stronger than its individual member states.