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Economic Outlook: Weak trade and investment threaten long-term growth

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Trade conflict, weak business investment and persistent political uncertainty are weighing on the world economy and raising the risk of long-term stagnation, according to the OECD’s latest Economic Outlook.

World GDP growth is expected to be 2.9% this year – its lowest annual rate since the financial crisis – and remain at 2.9%-3.0% in 2020 and 2021. Global GDP expanded 3.5% in 2018.

Bold action is needed to address both the high levels of uncertainty facing businesses as well as the fundamental changes taking place in the global economy. Policy-making must lead the transition to cleaner energy and to an increasingly digital world. Governments must work together urgently to boost investment and establish fair international rules on taxation and trade.

Presenting the Outlook in Paris OECD Chief Economist Laurence Boone said: “It would be a mistake to consider these changes as temporary factors that can be addressed with monetary or fiscal policy: they are structural. Without coordination for trade and global taxation, clear policy directions for the energy transition, uncertainty will continue to loom large and damage growth prospects.”

The slowdown involves advanced and emerging-market economies alike although its severity varies according to the importance of trade in individual countries. Growth in the US is forecast to slow to 2% in 2020 and 2021. In the euro area and Japan, growth is expected at around 1% while the deceleration in China’s expansion is set to reach 5.5% in 2021, compared with 6.6% last year.

Two years of escalating conflict over tariffs, principally between the US and China, has hit trade, is undermining business investment and is putting jobs at risk. Although household spending has been holding up, signs of it weakening are emerging. Car sales have declined sharply over the past year.

While the fragility of the world economy can be blamed in large part on deliberate policy decisions, it also reflects deeper, structural changes, says the Outlook. Digitalisation is transforming business models while climate and demographic changes are already disrupting existing patterns of activity. China, meanwhile, is rebalancing away from a reliance on exports and manufacturing towards consumption and services.

Speaking in Beijing where he was meeting Chinese Premier Li Keqiang and other heads of international organisations, OECD Secretary-General Angel Gurría said: “The alarm bells are ringing loud and clear. Unless governments take decisive action to help boost investment, adapt their economies to the challenges of our time and build an open, fair and rules-based trading system, we are heading for a long-term future of low growth and declining living standards.”

Aggregate investment growth in the G20 countries, excluding China, slowed from annual rate of 5% at the start of 2018 to only 1% in the first half of 2019, the Outlook shows. Global trade volume growth of goods and services is estimated to have slowed to 1% this year – its lowest rate since 2009. Although a modest pick up is projected, it is expected to remain weak.

The Outlook warns that any further escalation of the trade conflict would disrupt supply networks and weigh on confidence, jobs and incomes. Uncertainty about a future EU-UK trade relationship poses a further risk to growth as does the current high level of corporate debt.

For the OECD, strengthening international cooperation is crucial, particularly the need to agree on transparent and fair international taxation and trade rules. The OECD is also looking at how dedicated public investment funds can be geared to help meet long-term objectives such as ensuring society benefits fully from advances in digital technology or facilitating transition to a low carbon future.

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Curbing Corruption in the Midst of a Pandemic is More Important Than Ever

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Progress against corruption can be made even under the most challenging conditions, a new World Bank report finds. At a time when unprecedented levels of emergency funds have been mobilized to respond to the COVID-19 pandemic, the report offers a fresh look at some of the most effective approaches and tools to enhance government accountability.

Enhancing Government Effectiveness and Transparency: The Fight Against Corruption focuses on ways to enhance the effectiveness of anti-corruption strategies in the sectors most affected. It serves as a reference guide to policy makers and anti-corruption champions as further work is needed to sharpen the application of traditional tools.

“The COVID-19 pandemic has resulted in large scale emergency spending by governments at rapid speed to revive the economy as well as protect the poor and vulnerable who suffer disproportionately. As countries embark on the road to a more resilient and inclusive recovery, prudent use of scarce resources in a transparent manner is critical,” said World Bank Managing Director Mari Pangestu, “Progress is possible in all environments and we are committed to work closely with our partners in government, civil society, and the private sector to address corruption and its corrosive impacts.”

Some of the unprecedented emergency spending against COVID-19 has occurred without adhering to the regular checks and balances. While speed is understandable, without proper controls, it exposes governments to a variety of corruption risks that may undermine the effectiveness of their responses. To foster greater accountability, the report calls on governments to clearly articulate their actions, enforce rules, address violations, and remedy problems as quickly as possible, and in a transparent manner.

The report covers five key thematic areas: public procurement, infrastructure, state-owned enterprises, customs administration, and service delivery, and cross-cutting themes such as open government initiatives and GovTech, with case study examples from around the world. It will help equip public sector officials and civil society with a modular set of approaches and tools that can be drawn upon and adapted to their specific country context. 

The report’s case studies show that measures to curb corruption are often opportunistic, targeting specific areas of vulnerability where and when the political space allows. But even when actions have apparently limited impact, they can provide important foundation for future progress.

In Bangladesh, the implementation of the e-Government Procurement, combined with increased transparency and citizen participation, halved the number of single bidder tenders which improved competition significantly; increased the number of contracts awarded to non-local firms; and led to better prices with successful bidders.

Colombia updated its e-procurement system to publish data in an open way following international standards.  As a result, single bid tenders in the public roads agency, INVIAS, went down from 30% to 22%, while cities like Cali saw competitive processes increase from 31% to 56% in about two years.

In Ukraine, making wealth declaration forms of public officials available online was recognized by citizens and the international community as a key tool in the fight against corruption. The latest data shows that close to 5,3 million documents in the e-declarations system are accessible to the public. As of mid-2020, the High Anti-Corruption Court of Ukraine had 19 cases against officials accused of submitting false information in the Asset and Interest Declaration or intentionally not submitting a declaration.

In Afghanistan, the customs department has been progressively implementing a countrywide computerization of customs clearance operations. Although significant vulnerabilities exist and revenue loss at the borders remains a substantial challenge, revenue collected by customs has increased seven-fold between 2004 and 2019, and clearance time and the transparency of trade transactions has improved significantly.

The land reform program in Rwanda helped manage the conflicts around land and led to increased efficiency, transparency, citizen participation, and development of viable land governance institutions. Automation of land records reduced bribes paid to land registry officials as the information was in public domain.

“Institutions are incredibly important for implementing government policies, engaging civil society, and ensuring greater transparency in government operations,” said Ed Olowo-Okere, World Bank Global Director for Governance, “The global report highlights the importance of complimenting the traditional methods of dealing with corruption with advanced ones like GovTech and e-Procurement to address corruption, even in the most challenging and fragile environments.”

The World Bank Group, one of the largest sources of funding and knowledge for developing countries, is taking broad, fast action to help developing countries strengthen their pandemic response. We are supporting public health interventions, working to ensure the flow of critical supplies and equipment, and helping the private sector continue to operate and sustain jobs. We will be deploying up to $160 billion in financial support over 15 months to help more than 100 countries protect the poor and vulnerable, support businesses, and bolster economic recovery. This includes $50 billion of new IDA resources through grants and highly concessional loans.

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A rapid rise in battery innovation is playing a key role in clean energy transitions

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Affordable and flexible electricity storage technologies are set to catalyse transitions to clean energy around the world, enabling cleaner electricity to penetrate a burgeoning range of applications. Between 2005 and 2018, patenting activity in batteries and other electricity storage technologies grew at an average annual rate of 14% worldwide, four times faster than the average of all technology fields, according to a new joint study published today by the European Patent Office (EPO) and the International Energy Agency.

The report, Innovation in batteries and electricity storage – a global analysis based on patent data, shows that batteries account for nearly 90% of all patenting activity in the area of electricity storage, and that the rise in innovation is chiefly driven by advances in rechargeable lithium-ion batteries used in consumer electronic devices and electric cars. Electric mobility in particular is fostering the development of new lithium-ion chemistries aimed at improving power output, durability, charge/discharge speed and recyclability. Technological progress is also being fuelled by the need to integrate larger quantities of renewable energy such as wind and solar power into electricity networks.

The joint study shows that Japan and Korea have established a strong lead in battery technology globally, and that technical progress and mass production in an increasingly mature industry have led to a significant drop in battery prices in recent years. Prices have declined by nearly 90% since 2010 in the case of lithium-ion batteries for electric vehicles, and by around two-thirds over the same period for stationary applications, including electricity grid management.

Developing better and cheaper electricity storage is a major challenge for the future. According to the IEA’s Sustainable Development Scenario, for the world to meet climate and sustainable energy goals, close to 10 000 gigawatt-hours of batteries and other forms of energy storage will be required worldwide by 2040 – 50 times the size of the current market.

“IEA projections make it clear that energy storage will need to grow exponentially in the coming decades to enable the world to meet international climate and sustainable energy goals. Accelerated innovation will be essential for achieving that growth,” said IEA Executive Director Fatih Birol. “By combining the complementary strengths of the IEA and the EPO, this report sheds new light on today’s innovation trends to help governments and businesses make smart decisions for our energy future.”

“Electricity storage technology is critical when it comes to meeting the demand for electric mobility and achieving the shift towards renewable energy that is needed if we are to mitigate climate change,” said EPO President António Campinos. “The rapid and sustained rise in electricity storage innovation shows that inventors and businesses are tackling the challenge of the energy transition. The patent data reveals that while Asia has a strong lead in this strategic industry, the US and Europe can count on a rich innovation ecosystem, including a large number of SMEs and research institutions, to help them stay in the race for the next generation of batteries.”

The joint study follows the publication earlier in September of the major IEA report Energy Technology Perspectives 2020, which has deepened the IEA’s technology analysis, setting out the challenges and opportunities associated with rapid clean energy transitions.

As governments and companies seek to make informed investments in clean energy innovation for the future, sector-specific insights like those offered by the joint study will be highly valuable, including for helping bring about a sustainable economic recovery from the Covid-19 crisis. The innovation study provides an authoritative overview of the technologies and applications receiving research attention – and of those that are underserved. It also shows where they stand in the competitive landscape.

Innovation is increasingly recognised as a core part of energy policy, and this year the IEA has been introducing more tools to help decision-makers understand the technology landscape and their role in it – and to track progress in innovation and the deployment of technologies. This includes a comprehensive new interactive guide to the market readiness of more than 400 clean energy technologies.

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Russia Among Global Top Ten Improvers for Progress Made in Health and Education

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Russia is among the top ten countries globally for improvements to human capital development over the last decade, according to the latest update of the World Bank’s Human Capital Index (HCI).

The 2020 Human Capital Index includes health and education data for 174 countries covering 98 percent of the world’s population up to March 2020.

Russia’s improvements were largely in health, reflected in better child and adult survival rates and reduced stunting. Across the Europe and Central Asia region, Russia, along with Azerbaijan, Albania, Montenegro, and Poland, also made the largest gains in increasing expected years of schooling – mainly due to improvements in secondary school and pre-primary enrollments. The report also shows that over the last 10 years Russia has seen a reduction in adult mortality rates. However, absolute values of this indicator remain high in the country with this progress now at risk due to the global Covid-19 pandemic.

Human capital contributes greatly to improving of economic growth in every country. Investments in knowledge and health that people accumulate during their lives are of paramount concern to governments around the world. Russia is among the top improvers globally in the Index. However, challenges persist and much needs to be done to improve the absolute values of Index indicators,” said Renaud Seligmann, the World Bank Country Director in Russia.

The HCI, first launched in 2018, looks at a child’s trajectory, from birth to age 18, on such critical metrics as child survival (birth to age 5); expected years of primary and secondary education adjusted for quality; child stunting; and adult survival rates. HCI 2020, based on data up to March of this year, provides a crucial pre-pandemic baseline that can help inform health and education policies and investments for the post-pandemic recovery.

Of the 48 countries in Europe and Central Asia included in the 2020 Human Capital Index (HCI), 33 are among the upper-third in the world, and almost all are in the top half. However, there are significant variations within the region.

In Russia, a child born today can expect to achieve 68 percent of the productivity of a fully educated adult in optimal health. It is at the average level for Europe and Central Asia countries and the third result globally among the countries of the same income group. There is a stark contrast between education and health subscales in Russia. While the education outcomes of the country are high and outperform many high-income peers, its health outcomes are below the global average.

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