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Poland: Investing in a greener economy will strengthen recovery from COVID-19 crisis

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Poland has suffered milder economic losses from COVID-19 than many other countries, yet the crisis still risks aggravating inequalities and reversing gains in living standards. Focusing reforms and investment on building a greener and more inclusive economy with better quality jobs will help to secure a strong and sustainable recovery, according to a new OECD report.

The latest OECD Economic Survey of Poland says that while swift government support has cushioned firms and households from the worst of the economic shock so far, the pace of recovery from the pandemic is uncertain and the recession could have more protracted consequences. In particular, the crisis has disproportionately affected weaker regions, small firms and disadvantaged workers. It also accentuated pre-existing challenges such as Poland’s ability to finance long-term pension and health spending and to overcome barriers to growth for small businesses.

“Poland will likely exit the COVID-19 crisis with fewer scars than many other countries thanks to the strength of its economy going into the crisis and its swift response with containment and support measures when the pandemic struck,” said OECD Secretary-General Angel Gurría. “Yet reforms to tackle long-standing challenges are now even more essential if Poland is to get back to the pace of gains in living standards seen in recent years.”

The Survey recommends ramping up investment in the digital economy and adult training, and making it easier for Poland’s numerous small and medium-sized enterprises (SMEs) to grow nationally and internationally so they can generate better quality jobs. Bringing forward public investment in low-carbon energy and infrastructure could give a boost to the recovery while helping to lower greenhouse emissions and air pollution. Tax reforms could also support the recovery, in particular measures to lower taxes on low-skilled workers and ease tax compliance for smaller firms.

Prior to the pandemic, Poland’s economy was performing very strongly, with 2019 growth at 4.5% and rates of poverty and unemployment at historic lows, well below the OECD average. This followed two decades of solid growth, rising household incomes and declining inequality as Poland expanded its integration into global trade. Despite a recent resurgence of COVID-19 infections, the Survey forecasts a relatively mild drop of 3.5% in GDP for 2020 followed by a rebound of 2.9% in 2021 and 3.8% in 2022.

Yet challenges lie ahead: employment has declined, public debt has risen sharply, and the crisis will compound pre-existing problems such as inadequate provision of healthcare and housing and low labour productivity. Demographic pressures from low-fertility rates and migration outflows threaten to weigh on future growth and put pressure on pension adequacy and health budgets. Poles are retiring earlier than the OECD average, and the expected increase in life expectancy means pension replacement rates are set to shrink significantly in the absence of policy changes. Progressively aligning male and female retirement ages and raising the effective retirement age in line with increases in life expectancy would help to reduce the risk of old-age poverty, notably for women. Poland’s share of self-employed and temporary workers is well above the OECD average, and it will be vital to expand adult training to avoid low-skilled workers being left further behind in the aftermath of the crisis.

The Survey recommends that Poland find ways to support SMEs, which often have low productivity, little resilience or flexibility in the face of shocks like COVID-19, and difficulties, even in normal times, to provide high-paid, good-quality jobs. Improving the business environment, for example by reducing tax and regulatory burdens, would help SMEs to prosper and expand internationally.

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People are increasingly worried about inequalities but divided on how to address them

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Photo: Arno Senoner/Unsplash

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.

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Data show how the COVID-19 pandemic has hit all aspects of people’s well-being

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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.

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Inflation Concerns Push Up Emerging East Asia Bond Yields

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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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