Growth in the Western Balkans – Albania, Bosnia and Herzegovina, Kosovo, FYR Macedonia, Montenegro, and Serbia – declined in 2017, despite the creation of 190,000 new jobs in the first nine months of that year. According to the latest World Bank Regular Economic Report (RER) for the Western Balkans, Vulnerabilities Slow Growth, GDP in the region declined from 3.1 percent in 2016 to an estimated 2.4 percent in 2017, following a harsh winter and lower investments. Growth is forecast to rebound to 3.2 percent in 2018 and 3.5 percent by 2019.
“The trend we are seeing in the region is positive,” says Linda Van Gelder, World Bank Regional Director for the Western Balkans, “more and more people are finding jobs and wages are slowly rising upwards. However, growth is vulnerable to domestic and external shocks, as the slow-down in 2017 growth has confirmed. The more robust growth we are forecasting in the coming years is conditional on the right mix of policies and regulations to reduce vulnerability to shocks and support growth.”
A particularly cold winter led to more energy imports, large infrastructure projects required more equipment from abroad, and more goods were imported for higher consumption – resulting in a slight downward revision of the 2017 growth estimate from the previous forecast, from 2.6 percent to 2.4 percent. GDP expansion of between 3 percent and 4.4 percent in Albania, Bosnia and Herzegovina, Kosovo, and Montenegro was tempered by no growth in FYR Macedonia and an increase of just 1.9 percent in Serbia – the region’s largest economy. The overall outlook is positive, as growth in Serbia and FYR Macedonia recovers from the current shocks, Bosnia and Herzegovina and Kosovo increase investment, while growth in Albania and Montenegro moderates as large investment projects wind down, and the much-needed fiscal consolidation continues in Montenegro.
Employment − especially in wholesale and retail trade − is on the rise in the region, with all six countries adding jobs in 2017. The average employment rate for the Western Balkans has been steadily rising, reaching 42.6 percent in September 2017. Unemployment in the region was 5.6 percent lower than the previous year and youth unemployment fell from 37.5 percent in 2016 to 31.5 percent in 2017. However, according to the report, the pace of job creation is slowing, with the annualized rate of employment growth falling from 4.5 percent in 2016 to 3.2 percent in September 2017.
To bolster job creation and spur sustainable growth over the medium term, the report calls for bold structural reforms. Weather-related shocks, such as harsh winters and unexpected natural disasters, as well as country-specific vulnerabilities, such as political uncertainty, continue to threaten growth in the region. Countries can combat the effects of these vulnerabilities by introducing reforms promoting private sector development and reducing barriers to labor force participation. Policies that increase both physical and human capital, boost employment, and improve market institutions can simultaneously elevate the growth potential of the countries in the region and reduce inequality.
People are increasingly worried about inequalities but divided on how to address them
For a recovery from the COVID-19 crisis that is strong, sustainable but also fair, it will be key to tackle inequalities and promote equal opportunities. Yet while there is growing consensus that inequality is a problem, people are increasingly divided about its extent and what to do about it, according to a new OECD report.
Does Inequality Matter? says that most people are concerned about inequality. Four in five people in the OECD feel income disparities are too large in their country. People care about inequality of both outcomes and opportunities, as they perceive high income and earnings disparities as well as low social mobility. Moreover, concern over income and earnings disparities has risen in the last three decades, in line with the increase in income inequality.
People’s perceptions are not disconnected from reality. Along the lines of observed trends in income inequality, people believed, on average, that top earners earned 5 times as much as bottom earners in the late 1980s/early 1990s, while this perceived top-to-bottom earnings ratio has increased to 8 today, after having reached a peak of 10 during the Great Recession. Tolerance for inequality has also increased, though by less. Today people believe, on average, that top earners should earn 4 times as much as the bottom earners, up from 3 times in the late 1980s.
More than 6 out of 10 OECD citizens believe their government should do more to reduce income differences between rich and poor with taxes and transfers. The more people are concerned about inequality and perceive low social mobility, the higher their demand for redistribution.
However, beliefs about effectiveness of policies and determinants of inequalities matter. People are less likely to demand more redistribution if they believe that benefits are mistargeted, and they are less in favour of progressive taxation if they believe that corruption is widespread among public officials, prompting the misuse and misallocation of public benefits.
Demand for more progressive taxation is also lower where people believe that disparities are justified by differences in personal effort, rather than to circumstances beyond people’s control. For example, in 2018 in Poland 25% of people believe poverty is due to lack of effort rather than injustice or bad luck and 54% demand more progressive taxation, while in Germany that figure is 4% and 77%, respectively.
Yet, despite most people being concerned about inequality, they have strongly different beliefs about its extent and what to do about it. Within the average OECD country, one fourth of people thinks that more than 70% of the national income goes to the 10% richest households, contrary to another fourth who think that less than 30% goes to the richest households.
Furthermore, the large heterogeneity of people’s views on inequalities has grown in the last three decades, even among people with similar socio-economic characteristics. There is evidence of growing polarization: in most OECD countries there is an increasing gap between those who believe inequality is high and those who believe it is low. More unequal countries have a more divided public opinion: in Chile and the United States – two among the most unequal OECD countries – the perceptions about the extent of the top richest 10% shares diverge the most.
Data show how the COVID-19 pandemic has hit all aspects of people’s well-being
The COVID-19 pandemic has not only had devastating effects on physical health and mortality but has touched every aspect of people’s well-being, with far-reaching consequences for how we live and work, according to a new study by the OECD.
COVID-19 and well-being: life in the pandemic says the virus caused a 16% increase in the average number of deaths across 33 OECD countries between March 2020 and early May 2021, compared with same period over the previous four years. Over the same time frame, survey data in the report reveal rising levels of depression or anxiety and a growing sense among many people of loneliness and of feeling disconnected from society.
Government support helped to sustain average household income levels in 2020 and stemmed the tide of job losses, even as average hours worked fell sharply. Although job retention schemes offered workers some protection, 14% of workers in 19 European OECD countries felt it was “likely they would lose their job” within three months, and nearly 1 in 3 people in 25 OECD countries reported financial difficulties.
The report says experiences of the pandemic have varied widely depending on age, gender and ethnicity, as well as on the type of job people do and on their level of pay and skills. The crisis also aggravated existing social, economic and environmental challenges.
In those countries with available data, workers from ethnic minorities have been more likely to lose their jobs during the pandemic. Mental health deteriorated for almost all population groups on average in 2020 but gaps in mental health by race and ethnicity are also visible. COVID-19 mortality rates for some ethnic minority communities have been more than twice those of other groups.
Younger adults experienced some of the largest declines in mental health, social connectedness and life satisfaction in 2020 and 2021, as well as facing job disruption and insecurity.
Launched on the first anniversary of the new OECD Centre for Well-being, Inclusion, Sustainability and Equal Opportunity (WISE), the report offers a primer for OECD recommendations on well-being. It assesses the impact of the pandemic across the 11 dimensions identified in the OECD’s Well-being Framework – income and wealth; work and job quality; housing; health; knowledge and skills; environment; subjective well-being; safety; work-life balance; social connections; and civil engagement. It features data on inclusion and equality of opportunity, and also considers how the stocks of economic, human, social and environmental resources that sustain well-being have fared.
The report argues that as governments move from emergency support to stimulating the recovery, they need to refocus their action on what matters most to people’s well-being.
A key objective must be to increase the job and financial security of households, and particularly those most affected by the crisis – with a focus on the most vulnerable, on youth, women and the low skilled. Addressing the burden of poor physical and mental health and a cross-government approach to raising the well-being of the most disadvantaged children and youth must also be prioritised. The report also stresses that actions to raise living standards and equality of opportunity must take place within the context of greening the economy: the climate and biodiversity crises, like the pandemic, require a coordinated response across public policy.
A well-being approach, the report explains, looks at government objectives as interconnected goals, focusing on how different policies can complement each other. Such an approach encourages decision-making that simultaneously considers impacts on current well-being, inclusion, and the sustainability of well-being over time. For instance, improving long-term economic opportunities through raising child well-being, or aligning efforts to combat climate change with social and economic objectives by increasing employment and mobility for people and places left behind.
Natural, human and social capital will need rebuilding after the crisis, the report adds. Reducing inequalities in access to, and uptake of lifelong learning, for example, will help people – especially the disadvantaged – get high quality jobs by developing training programmes that address skills gaps and emphasise digital abilities.
Social capital – the norms, shared values and institutions that foster co-operation – has shaped communities’ responses to the pandemic. Data from across OECD countries shows that both trust in institutions and interpersonal trust influenced the effectiveness of pandemic containment. Although it has recently shown signs of weakening, institutional trust in 2020 in most OECD countries was at its highest since records began in 2006.
The report says reinforcing trust is key to reconnecting people to their societies, and to the institutions that are meant to support them. By doing so, the well-being of citizens is improved both today and in a post-pandemic future.
Inflation Concerns Push Up Emerging East Asia Bond Yields
Emerging East Asia’s bond market grew 3.4% in the third quarter to $21.7 trillion, although rising global inflation and a shift in the United States (US) monetary stance weakened regional financial conditions, according to the latest issue of the Asia Bond Monitor.
Bond yields rose, currencies weakened, and risk premiums edged up amid increased global inflation and the US Federal Reserve’s announcement that it would limit bond purchases starting in November, according to the report, released today by the Asian Development Bank (ADB).
“The encouraging macroeconomic outlook and accommodative policy stances are supporting the region’s financial conditions,” said ADB Acting Chief Economist Joseph Zveglich, Jr. “However, central banks in the region may find they need to be less accommodative to keep inflation in check and to keep in step with US monetary policy changes. That said, the chance of another ‘taper tantrum’ is limited as the direction of the Federal Reserve’s stance is clearly communicated and the region’s economic fundamentals remain strong.”
Emerging East Asia comprises the People’s Republic of China (PRC); Hong Kong, China; Indonesia; the Republic of Korea; Malaysia; the Philippines; Singapore; Thailand; and Viet Nam.
Government bonds remained the dominant segment, increasing 3.9% from the previous quarter to $13.6 trillion. The bond markets of the Association of Southeast Asian Nations (ASEAN) members—many of which suffered from the coronavirus disease’s (COVID-19) Delta variant outbreak—grew 14.4% from a year earlier to $1.9 trillion in the third quarter, compared with 12.6% and 7.6% growth in the PRC and the Republic of Korea, respectively.
ASEAN bond markets showed sound market capacity during the pandemic, evident in low bond yields amid rapid market expansion. Domestic financial institutions, particularly banks, anchored bond market functioning. At the same time, a few ASEAN central banks facilitated market liquidity and government financing via asset purchasing programs. Mid- and long-term bonds account for a majority of outstanding bonds in ASEAN bond markets, implying a relatively stable financing structure.
Sustainable bond markets in the ASEAN region plus the PRC; Hong Kong, China; Japan; and the Republic of Korea totaled $388.7 billion, remaining the largest regional sustainable bond market after Europe and accounting for 19.2% of global sustainable bond markets at the end of September. Green, social, and sustainability bonds accounted for 71.6%, 13.0%, and 15.3% of the region’s sustainable bonds outstanding, respectively. As this regional market develops, the issuer base is also diversifying from just the financial sector to other business sectors.
The latest issue of the Asia Bond Monitor analyzes the price and yield differences between labeled and unlabeled green bonds. Recent research finds that investors would pay more for labeled or certified green bonds that have better information disclosure and lower reputational risk.
The report also discusses how the Delta variant outbreak and uneven vaccination progress slowed and caused divergences in regional economic recovery; the likelihood of a “taper tantrum” repeat; and risks to the current outlook, including continuing pandemic-induced uncertainty, slow vaccination rollouts in developing countries, and supply chain disruptions.
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