Tag Archives: Economics

Older and Older

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I think this is no longer news, but the OECD held a press conference yesterday to inform us that we are all living longer, but we still aren’t working longer, and that somehow these two facts don’t fit with our existing pension arrangements. Well perhaps it isn’t exactly news, but it still needs to sink-in somewhere. So I guess this is why yesterday the OECD were drawing everyone’s attention to a new report they have prepared on the basis of 21 separate country reports compiled as part of a thematic review of policies to improve labour market prospects for older workers initiated in 2001. The whole thing will get icing and a cherry at what is being called a High-Level Policy Forum to be held next Tuesday (18 October) at Palais d’Egmont. More details on the reports and the accompanying older workers forum can be found here).

At present, many public policies and workplace practices discourage older people from carrying on working. On average in OECD countries, fewer than 60% of people aged between 50 and 64 have a job, compared with 75% of people in the 25-49 age group (see Chart 1).

Such policies and practices are relics of a bygone age and unsustainable at a time when population ageing is straining public finances and holding back higher living standards. If there is no change in work patterns, the ratio of older inactive persons per worker will almost double in the OECD area over the next decades, from around 38% in 2000 to just over 70% in 2050.

This, in turn, would lead to higher taxes and/or lower benefits, coupled with slower economic growth. On the basis of unchanged patterns, OECD analysis shows, GDP growth per capita in the OECD area could shrink to around 1.7 % per year over the next three decades, about 30% below the average annual rates witnessed between 1970 and 2000.

Incidentally, I think this figure for sustained *per capita* growth of 1.7% across the OECD over the next decades is extraordinarily optimistic. If you strip out some of the large economies where the ageing problems are considerably more moderate – US, UK, France – I juts can’t see how the rest are going to sustain any per capita increase at all. What they will be into is damage containment. Unfortunately, as we can see, they seem to be in no special hurry to get on with even this.

Delphi – Consulting The Oracle

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The filing for Chapter 11 bankruptcy last Saturday by Delphi, the No. 1 U.S. car-parts supplier, is making waves, both in the stockmarkets and in the news columns. Stephen Roach had a whole GEF post devoted to the issue yesterday. This morning it is the turn of the FT, which has a (subscription only) piece that cites Delphi CEO Steve Miller to the effect that the pension liability conflicts which lie behind the bankruptcy are only a foretaste of ‘the intergenerational warfare’ that is to come:

“The bankruptcy of Delphi, a car parts maker employing 180,000 people worldwide, marked a “flash point” between the interests of current and former workers, its chief executive said on Monday.

Warning of “hard choices ahead”, Steve Miller, who previously managed US steel and airline bankruptcies, said the conflict offered a foretaste of an “inter-generational warfare” facing much of the industrialised world.“

German Exports Continue To Rise

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German exports, long the mainstay of the national economy, rose for a third month in four in August according to data released today from the Federal Statistical Office. The year on year increase of 13.4% is partly a reflection of the way the recent drop in the value of the euro has helped boost demand.

“According to provisional data of the Federal Statistical Office, Germany exported commodities to the value of EUR 63.4 billion and imported commodities to the value of EUR 51.9 billion in August 2005. German exports of August 2005 thus were 13.4% and imports 15.3% above the respective August 2004 levels. Upon calendar and seasonal adjustment, exports increased by 3.5% and imports by 6.0% compared with July 2005.

The foreign trade balance showed a surplus of EUR 11.6 billion in August 2005. In August 2004, the foreign trade balance showed a surplus of EUR 11.0 billion. Upon calendar and seasonal adjustment, the foreign trade balance showed a surplus of EUR 12.7 billion in August 2005.”

While exports power ahead the continuing weaknesses in domestic consumer demand and investment are to be seen in the fact that German industrial production fell 1.6 percent in August while factory orders fell 3.7 percent.

Alcohol Consumption Pro-Cyclical?

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Thanks mainly to indirect encouragement from commenter Teme, I am continuing to plough the Finland furrow. Today I found this very interesting piece of research:

ARE SLUMPS REALLY DRY SEASONS?

This paper explores the connection between alcohol mortality, drinking behaviour and macroeconomic fluctuations in Finland by using both aggregate and micro-level data during the past few decades. The results from the aggregate data reveal that an improvement in regional economic conditions measured by the employment-to-population rate produces a decrease in alcohol mortality. However, the great slump of the early 1990s is an exception to this pattern. During that particular episode, alcohol mortality did indeed decline, as there was an unprecedented collapse in economic activity.
The results from the micro-data show that an increase in the employment-to-population rate and expansion in regional GDP produces an increase in alcohol consumption while having no effect on the probability of being a drinker. All in all, the Finnish evidence presented does not overwhelmingly support the conclusions reported for the USA, according to which temporary economic slowdowns are good for health. In contrast, at least alcohol mortality seems to increase in those bad times that are not exceptional economic crises like the one experienced in the early 1990s. However, there is evidence that alcohol consumption is strongly procyclical by its nature. This suggests that alcohol consumption and mortality may be delinked in the short-run business cycle context.

KEY WORDS: alcohol mortality, drinking, business cycles

German Confidence Indexes

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The sharp eyed will have noticed that I have copiously refrained from commenting on the unexpectedly high reading obtained in yesterday’s German Ifo Institute Business Climate index. The index registered a slight unexpected increase, but as Ifo President Hans-Werner Sinn notes: “An evaluation of responses submitted before and after the federal election showed a tendency to more unfavourable expectations after than before the election, so the reading may in fact say a lot more about sentiment before rather than after the election.

More informative in many ways may be the Gfk consumer climate survey out today (follow link and click on button). The survey, which attempts to forecast the climate going forward, saw an increase in the number expressing scepticism about private income expectations and the propensity to buy:

“While in August this year the consumer mood was still relatively unaffected by the hike in oil prices and yet fired by the prospects of the elections, both the tax reform and the trend in oil prices seem to have been felt in September. Indicators covering private income and private consumption are particularly affected. Consequently, the consumer climate was also slightly down. In contrast, economic prospects have become more optimistic. The findings of the September survey given below do not reflect the outcome of the recent elections, since the survey was completed just before the date when the elections were held.”

At the present time it is very hard to assess what the impact of Germany’s election stalemate will be on the economic climate moving forward.

More Things Finnish

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Just a couple of background papers on Finland. Firstly this working paper from Jaakko Kiander “The Evolution of the Finnish Model in the 1990s: From Depression to High Tech Boom“, and a paper from Francesco Daveri and Mika Maliranta: Aging, Technology and Productivity (which you can find in this working papers list).

You can find the abstract below the fold.
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Italy’s Perverse Problem

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Italy has, of course, it’s own version of the twin deficit: on the one hand a political system which maintains serious democratic and credibility deficits (viz the mutual ppresence of Tremonti and Fazio in Washington this weekend) and the equally important financial deficit which has generally received less attention in the press. (We can leave on one side the growing Balance of Payments current account defecit for the time being). Last Friday Morgan Stanley’s Vicento Guzo drew attention to the government budget deficit issue, describing the task of introducing auterity measures with the backdrop of such lacklustre growth as ‘daunting’, and pointing to one highly ‘perverse’ consequence of Italy’s euro membership:

Market reaction was muted, as usual. Italy keeps benefiting from the euro’s shelter effect. Had this political turmoil occurred ten years ago, outside the common currency influence, it would have probably led to a noticeable rise in the country’s borrowing costs with dangerous ripple effects on its financial system. It may sound as a great achievement, but the path ahead is more treacherous than it looks, in our view. The currency is playing a perverse role, by reducing the incentive to seriously tackle the debt problem. Markets’ appraisal, however, is inherently binary: either they assume Italy will put its debt on a sustainable trajectory or they assume it won’t. This is why the cost of further procrastination might be suddenly high.

Why Finland?

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I just put up a post on the economic situation of Finland. Now I am putting another. Why the sudden interest? What is there about the Finnish economy which could be of interest to more people than the five million or so who actually live there?
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Logging-on Finland

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I am trying to follow developments in the Finnish economy. This isn’t always easy since I am linguistically challenged, and the english language press doesn’t have a lot of info. One thing is clear: growth since the start of the century hasn’t been spectacular. Of course drawing any clear conclusions is difficult since the economy seems to be heavily dependent on one tech company and its lumber industry:

Finland’s gross domestic product (GDP) rose 1.7 percent month-on-month in July for an annual rise of 0.9 percent, due to increased activity in construction and services, Statistics Finland (SF) said on Tuesday.

SF also revised the June year-on-year GDP figure to a decline of 3.2 percent versus a previous 3.3-percent decline.

The country’s paper industry was still affected in July by production lost during plant start-ups after mills in the key export sector were shut for 7 weeks from mid-May.
Source: NTC research

You can find the Statistics Finland data here.

Sharp Decline In German Investor Confidence

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NTC research is reporting that investor confidence declined sharply in Germany in September. The research – by think tank ZEW – was carried out between September 5 and Monday at 1500 GMT. So the reading is weighted to pre-election (but post Merkel slump) answers:

German investor confidence fell in September due in major part to uncertainty about the country’s future economic policies, a survey by the ZEW economic think tank showed on Tuesday.

ZEW’s expectations indicator, based on a poll of 309 analysts and institutional investors, fell to 38.6, from 50.0 in August.

”An essential reason for the declining indicator is that uncertainty about the future economic policy may affect the investment climate and puts the economic upswing at risk, ” ZEW said in a statement.