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Ireland recovering strongly but weak productivity and Brexit cloud outlook

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The Irish economy is recovering robustly. Business investment by local firms has picked up, household consumption is reviving while the boost to jobs and a rapidly declining unemployment rate have led to strong wage growth in a number of sectors, says a new OECD report.

In its latest Economic Survey of Ireland, the OECD says the expansion is projected to continue over the next two years – albeit at a more sustainable pace (forecast at 2.9% in 2018 and 2.4% in 2019) – but it warns that Brexit poses a serious risk to the outlook. It estimates that a trade arrangement between Britain and the EU governed by the WTO’s Most Favoured Nation rules could reduce Irish exports by 20% in sectors such as agriculture and food.

Such uncertainty makes it vital to further improve public finances to create scope for policies to support the economy in the event of a shock and ensure that the benefits of growth reach everyone.

Presenting the survey in Dublin, OECD Secretary-General Angel Gurría said: “Ireland’s economic performance over recent years has enjoyed a remarkable turnaround that owes much to government efforts to restore dynamism and address the legacies of the crisis, particularly unemployment. But much remains to be done. Reviving productivity in Ireland’s business sector is the key to boosting future output and wages. Efforts also need to ensure that growth is inclusive and sustainable, improving people’s well-being without leaving segments of the population behind.

Among its many recommendations, the survey highlights that reviving productivity will be crucial to ensure Ireland’s future economic dynamism and to maintain high living standards. Local firms compare poorly with foreign-owned multinationals active in Ireland, with productivity gaps between them widening. The report argues that unblocking the productivity potential of Irish firms will require improving the business environment and encouraging the benefits of new ideas and technology in high performing foreign companies to spill over to local firms.

Creating the right environment will require reducing regulatory barriers to entrepreneurship. Rules surrounding commercial property and legal services are too costly while access to finance for young firms needs to improve. The OECD also recommends improving infrastructure to alleviate emerging bottlenecks. Careful evaluation through a more systematic collection of information is required in order to identify investment projects which would have the highest returns in terms of well-being and economic growth.

While the survey highlights the improvement in public finances and the reduction of fiscal deficits, it suggests that public debt could be further reduced by broadening the tax base, including by eliminating exemptions and preferential VAT rates and raising the property tax yield through more regular revaluations. It also calls attention to the need to continue strengthening the financial sector: despite the fact that non-performing loans (NPL) on bank balance sheets have now declined by around 60% from their peak, incentives are needed for banks to further reduce their NPL stock.

The survey also notes that life satisfaction is relatively high in Ireland, but well-being is lower than in many other OECD countries in the areas of housing, health and jobs among young people with low qualifications. House prices and rents are rising strongly. Because supply is not keeping up with demand, local councils should be encouraged to rezone underutilised sites for residential use. To promote the efficient use of such land, a broad-based land tax should be introduced. Building more social housing would also help tackle the high cost of accommodation and protect those with high debts from falling into poverty.

Ireland does not have universal coverage for primary healthcare which leads to high costs for those without private insurance. The survey recommends laying out a clear path to the provision of universal access to health and social services.

To help tackle low labour market participation among vulnerable groups, the OECD argues for making all social benefits conditional on earnings and not employment status and for withdrawing them more gradually as earnings rise.

The OECD and the Irish government will this month begin working together on a one-year project to review policies for small and medium-sized enterprises in Ireland. It will look in detail at issues such as raising the productivity of local firms, enhancing linkages with foreign multinationals in Ireland and rebalancing activity between Dublin and the regions.

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New Skills Development Key to Further Improving Students’ Learning Outcomes

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Learning outcomes in Russia would benefit significantly from a focus on teaching new skills that are tailored to the modern labor market, says a new World Bank report, New Skills for a New Century: Informing Regional Policy.

Russia’s education system has traditionally been well-performing and efficient, with Russian students appearing among the top performers globally. However, today’s labor market requires “21st century skills” – a combination of skills, knowledge, and expertise that students need to succeed in the modern world.

“Russia’s education system could achieve better teaching and learning outcomes if it focused more on developing 21st-century skills,” says Tigran Shmis, World Bank Senior Education Specialist. “There is a strong relationship between the quality of the school environment, innovative teaching practices, students’ perception of school, and students’ learning outcomes.”

According to the report, 38 percent of Russian schools today are not equipped with workshops and 46 percent do not have scientific laboratories. And, 77 percent of educational institutions do not have dedicated places for integrated lessons that stimulate the development of new skills and team interaction.

The way teaching is delivered, the physical characteristics of the learning environment, and the school’s psychological climate all affect students’ learning results. The study provides an insight into how these factors impact the development of students’ skills, including 21st century and digital skills. Along with data analytics, the study includes a qualitative perspective of modern teaching and learning in Russia, as well as the impacts of the COVID-19 pandemic on teaching and learning.

“Developing the ability of students to master 21st century skills is critical to ensuring their future employment and career success,” says Renaud Seligmann, World Bank Country Director for Russia. “Studies in Russia have shown that businesses having access to workers with these skills will also be critical for growth and productivity. In turn, high-quality human capital is a cornerstone of the resilience and sustainability of the national economy.”

The report provides recommendations for how schools in Russia can better help students excel. For example, teachers who practice innovative teaching are more likely to drive higher achievement. Modern teaching practices can be supported by expanding the use of technology and enhancing the learning environment in classrooms. Technology should be made available in schools on an equitable basis to improve student learning and enhance teachers’ professional development. Education policymakers should prioritize the prevention of bullying and the development of supporting measures to ensure a positive school climate.

Despite the physical return of students to schools, the COVID-19 pandemic is causing continued learning losses. Therefore, new equipment, ICT, and innovative teaching methods are needed to enable teachers to improve their practices and compensate such learning losses.

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Post-COVID-19, regaining citizen’s trust should be a priority for governments

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The COVID-19 crisis has demonstrated governments’ ability to respond to a major global crisis with extraordinary flexibility, innovation and determination. However, emerging evidence suggests that much more could have been done in advance to bolster resilience and many actions may have undermined trust and transparency between governments and their citizens, according to a new OECD report.

Government at a Glance 2021 says that one of the biggest lessons of the pandemic is that governments will need to respond to future crises at speed and scale while safeguarding trust and transparency. “Looking forward, we must focus simultaneously on promoting the economic recovery and avoiding democratic decline” said OECD Director of Public Governance Elsa Pilichowski. “Reinforcing democracy should be one of our highest priorities.”

 Countries have introduced thousands of emergency regulations, often on a fast track. Some alleviation of standards is inevitable in an emergency, but must be limited in scope and time to avoid damaging citizen perceptions of the competence, openness, transparency, and fairness of government.

 Governments should step up their efforts in three areas to boost trust and transparency and reinforce democracy:

 Tackling misinformation is key. Even with a boost in trust in government sparked by the pandemic in 2020, on average only 51% of people in OECD countries for which data is available trusted their government. There is a risk that some people and groups may be dissociating themselves from traditional democratic processes.

 It is crucial to enhance representation and participation in a fair and transparent manner. Governments must seek to promote inclusion and diversity, support the representation of young people, women and other under-represented groups in public life and policy consultation. Fine-tuning consultation and engagement practices could improve transparency and trust in public institutions, says the report. Governments must also level the playing field in lobbying. Less than half of countries have transparency requirements covering most of the actors that regularly engage in lobbying.

 Strengthening governance must be prioritised to tackle global challenges while harnessing the potential of new technologies. In 2018, only half of OECD countries had a specific government institution tasked with identifying novel, unforeseen or complex crises. To be fit for the future, and secure the foundations of democracy, governments must be ready to act at speed and scale while safeguarding trust and transparency.

 Governments must also learn to spend better, according to Government at a Glance 2021. OECD countries are providing large amounts of support to citizens and businesses during this crisis: measures ongoing or announced as of March 2021 represented, roughly, 16.4% of GDP in additional spending or foregone revenues, and up to 10.5% of GDP via other means. Governments will need to review public spending to increase efficiency, ensure that spending priorities match people’s needs, and improve the quality of public services.

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Sweden: Invest in skills and the digital economy to bolster the recovery from COVID-19

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Sweden’s economy is on the road to recovery from the shock of the COVID-19 crisis, yet risks remain. Moving ahead with a labour reform to facilitate adaptation in a fast-changing economic environment, and investing in digital skills and infrastructure, will be crucial to revive employment and build a sustainable recovery, according to the latest OECD Economic Survey of Sweden.

The pandemic triggered a severe recession in Sweden, despite mild distancing measures and swift government action to protect people and businesses. GDP fell by less than in many other European economies in 2020, thanks to reinforced short-time work, compensation to firms for lost revenue and measures to prop up the financial system, but unemployment still rose sharply. Solid public finances provided room for further stimulus in 2021 to buttress the recovery.

 The Survey recommends maintaining targeted support to people and firms until the pandemic subsides, then focusing on strengthening vocational training and skills and increasing investment in areas like high-speed internet and low-carbon transport. Addressing regional inequality, which is low but rising, should also be a priority as the recovery takes hold.

 The Survey shows that Sweden has been among the most resilient OECD countries in the face of a historic shock. Yet, like other economies, it faces challenges from demographic changes and the shift to green, digital economies. Investments in education and training, and labour reforms along the lines negotiated by the social partners, will support job creation and strengthen economic resilience. Building on Sweden’s leadership in digital innovation and diffusion will also be key for driving productivity.

 After a 3% contraction in 2020, interrupting several years of growth, the Survey projects a rebound in activity with 3.9% growth in 2021 and 3.4% in 2022 as industrial production resumes and exports recover. The recovery in world trade is bolstering the Swedish economy, however the country remains vulnerable to potential disruptions in global value chains.  

The pandemic has aggravated a mismatch in Sweden’s job market, with unfilled vacancies for highly qualified workers coinciding with high unemployment for low-skilled workers and immigrants. The public employment service needs strengthening to provide better support to jobseekers, including immigrants and women, and labour policies should strike the right balance between supporting businesses and workers and supporting transitions away from declining businesses towards growing sectors.

A rising share of youths and older people in the population, especially in remote areas, is affecting the finances of local governments, which provide the bulk of welfare services. Strengthening local government budgets and ensuring equal welfare provision across the country will require providing tax income to poorer regions more efficiently and raising the economic growth potential across regions through investments in innovation. Improving coordination between government entities and reinforcing the role of universities in local economic networks would help achieve that aim.

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