Economy
Slovenia joins the OECD
An easing in the pace of expansion in most OECD countries may be in store, according to latest leading indicators. The indicators, which include order books, building permits and long-term interest rates, increased by 0.1 points in May 2010, slightly lower than the outturn for April, making it the tenth consecutive month of deceleration. There are tentative signs of a peak in Brazil, with stronger evidence of a peak emerging in France and Italy. Leading indicators for Japan, the US and Germany reveal that the ongoing expansion in activity is likely to be maintained, but possibly at a slower pace. In China,
OECD leading indicators have pointed to the possibility of a slowdown since December 2009. GDP in the OECD area grew for the fourth consecutive quarter, with an increase of 0.6% in the first quarter of 2010 compared with the previous period, driven mainly by stockbuilding. GDP grew strongly in the US and Japan, by 0.7% and 1.2% respectively, but slowed in the euro area to 0.2%. Italy returned to positive GDP growth with an increase of 0.5% in the first quarter after a small decline in the previous quarter, while the pace of the recovery eased in both France and the UK, and was unchanged in Germany.
OECD and China leading indicators Unemployment in the OECD area slid in May 2010 to 8.6%, a percentage point lower than in April.
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Consumer prices in the OECD area rose by 2% in the year to May 2010, slightly down from 2.1% in April. This trend reflected the dip in energy inflation, which increased by 11% in May, compared with 12.1% in April. Food prices rose by 0.5% in the year to May 2010, the third consecutive monthly increase.
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Exports from G7 countries grew 3.9% quarteron-quarter, and imports were up 3.1% in the fourth quarter of 2009.
Slovenia became the 32nd member of the OECD on 21 July 2010. The country’s accession continues the OECD’s enlargement process. Slovenia was one of three candidate countries invited to join the organisation this spring, the other two being Estonia and Israel, both have which have now signed accession agreements. Talks continue with Russia, another candidate. In a recent interview with the OECD Observer, Slovenia’s finance minister, Franc Križanič looked forward to membership, saying that, though a small country, Slovenia had strong institutions and values, and would enrich the OECD’s development and reform agendas. For more information, visit www.oecd.org/slovenia and www.oecd.org/accession. See also www.oecdobserver.org
Chinese flexibility welcomed China’s announcement in June that it would introduce more flexibility into its exchange rate policy was welcomed by OECD SecretaryGeneral Angel Gurría, who said that, together with sustained fiscal expansion structural reform, exchange rate flexibility should contribute to achieving strong, sustained and balanced growth in the world economy. Some experts contend that China’s currency, the renminbi, has been undervalued, fuelling exports but keeping imports expensive. See www.oecd.org/china
Food speculation question The popular view that financial market speculation caused a price bubble in agricultural futures markets in 2007-08 has been questioned by findings in a preliminary study prepared by two US academics for the OECD. Professors Scott Irwin, of the University of Illinois, and Dwight Sanders, of the University of Southern Illinois, found an increase in the amount of money flowing into commodity index funds in 2006-2008. Although this reflected a shift, as index fund investors entered agricultural commodities futures, there was no direct statistical link between their involvement and price volatility,
the study argues. OECD experts are anxious that regulators do not unintentionally deprive futures markets of liquidity by tightening up rules on futures funds. They cite a range of market factors and policy actions to explain the food price spikes in 2007-08, including supply shortfalls, depleted global stocks and an upswing in demand for food, feed and biofuels, alongside relatively high oil prices. Policies such as export restrictions also played a role. But some business analysts and civil society groups maintain that speculation helped cause the food price bubble. For more on this issue, see www.oecd.org/agriculture
Plus ça change... “The current economic and social state of many young people falls far short of what is desirable. It is not just a “youth problem”. As long as total unemployment remains high, it is unrealistic to expect a significant improvement in youth job prospects.” Extract from the “OECD Employment Outlook”, No 202, October/November 1996
OECD Observer No 280 July 2010
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