OECD ECONOMIC SURVEY OF THE UNITED KINGDOM 14 OCTOBER 2020
@OECD
@OECDeconomy
http://www.oecd.org/economy/united-kingdom-economic-snapshot/
Key messages COVID-19, leaving the EU Single Market and low productivity growth are major challenges Fiscal and monetary policy support are key to foster a sustainable recovery • Prioritise digital infrastructure in the planned increased in public investment • Accelerate the green transition through public investment Get people back to good-quality jobs and support low-income households • Increase support job search and training • Reduce out-of-pocket cost of childcare Ensure a close trading relationship with the European Union and other countries • Keep low barriers to trade and investment with EU and non-EU countries • Seek high market access for services 2
The COVID-19 crisis has already hit the economy hard B – Income loss
A - real GDP
% of surveyed households responding positively
Y-o-y % changes
100
20 15
80
10 5
60
0
40
-5 -10 -15
0.7 %
Projection: -10.1%
-20 1700 1750 1800 1850 1900 1950 2000
20 0
Reduced income
Struggling Had to use to pay bills food banks
Source: OECD Interim Economic Outlook database, ONS and Bank of England, Millennium of Macroeconomic Dataset.
3
A. Transport GBR
DEU 140
120 120
100 100
80 80
60 60
40 40
Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20
140
Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20
Transport and tourism have been hit severely Index 1 January 2019 = 100 B. Travel and tourism
FRA
Source: Gonzales F., A. Jaax and A. Mourougane, “Nowcasting Services Trade”, forthcoming.
USA
4
Productivity has been underperforming over a decade Real output per hour, change from start of recession
35
% 1973
30
1979
2008
25 20 15 10
2020Q1
5 0 -5
0
5
10
15
20
25
30 35 40 45 Quarters since the peak
Source: OECD calculations based on ONS (2020), Labour productivity database, July.
5
Uncertainty has hampered investment and growth since 2016 Real GDP
Index 2016Q2 = 100, volumes
110
UK: Actual UK: Pre-referendum trend France, Germany and USA: Actual
108
2.8%
106 1.5%
104 102 100 98
2016Q2
2016Q4
2017Q2
2017Q4
2018Q2
2018Q4
Source: OECD (2020), OECD Economic Outlook: Statistics and Projections (database).
2019Q2
2019Q4 6
The recovery will be gradual and there are substantial risks around COVID-19 and exit from the Single Market A. Real GDP
B. Economic outlook Annual percentage change
Index 2019Q4 = 100, s.a. 105
2019 2020 2021
100 95 90
Gross domestic product (%)
1.5
-10.1
7.6
Unemployment rate (%)
3.8
5.3
7.1
Fiscal balance (% GDP)
-2.2
-15.2
-8.4
85
2021Q3
2021Q1
2020Q3
2020Q1
2019Q3
2019Q1
2018Q3
2018Q1
2017Q3
2017Q1
2016Q3
75
2016Q1
80
Source: OECD Interim Economic Outlook database, September.
Government gross debt (% of GDP)
116.2 138.2 140.1
7
Monetary policy has eased A. Change in policy interest rates since end-2019ยน
% of 2019 GDP
35 30
-1.0
25
-1.5
20
-2.0
15
-2.5
10
-3.0
5
-3.5
0
ZAF MEX BRA ISL TUR CZE CAN USA NOR POL CHL IND IDN KOR NZL GBR AUS CHN ISR EA JPN
-0.5
0.7 %
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
0.0
% pts
B. Assets purchased by the creation of central bank reserves
1. Between end-2019 and 1st October 2020. Source: OECD (2020), Economic Outlook: Statistics and Projections (database), and Refinitiv.
8
The large-scale and rapid policy reaction is appropriate Proportion of businesses applying to government schemes Businesses currently trading
Businesses temporarily closed or paused trading
77% Coronavirus Job Retention Scheme 23%
Government-backed accredited loans or finance agreements
18%
Business grants funded by the UK and devolved governments
20%
Not applied for any of these schemes 0 Source: ONS.
20 40 60 80 100 0 %
All businesses (excluding those permanently ceased trading) 77%
75%
23%
25%
21%
18%
21%
20%
20 40 60 80 100 %
0
20 40 60 80 100 % 9
MOVING FROM CRISIS MANAGEMENT TO ACHIEVING RECOVERY
10
Higher unemployment risks scarring the economy 5
Million
Million
10 Claimant count unemployed (LHS)
4
9
Total number of jobs furloughed (RHS)
3
8
2
7
1
6
0
5
January
March
Source: ONS and HM Revenue & Customs.
May
July
September
11
Fiscal support should remain in place as needed until the recovery is established 3
Primary balance
% of GDP
0 -3 -6 -9
Source: OECD Interim Economic Outlook database.
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
-15
2005
-12
12
The emergency package and the fall in GDP will raise the public debt-to-GDP ratio 200
Net public debt
% of GDP No adjustment
Adjustment in primary balance
160
Manufacturing and services productivity rebound
120 80
2039
2037
2035
2033
2031
2029
2027
2025
2023
2021
2019
2017
2015
2013
2011
2009
2007
0
2005
40
Note: The "No adjustment" scenario assumes that the primary balance stay constant in terms of GDP after 2021. "Adjustment in primary balance" scenario assumes the primary balance improves by 0.5% of GDP per year over 2025-2035 and it remain unchanged after 2035. The “Manufacturing and services productivity rebound� scenario that productivity growth in the service sector will rebound to 2% and to the 1995-2005 average in manufacturing. Source: OECD Interim Economic Outlook database and calculations using data from Office for Budget Responsibility (OBR).
13
0
Source: IFF Research (2018), Employer skills survey 2017.
Instructing, teaching or training people
Team working
Managing or motivating other staff
Main technical and practical skills shortages
Managing own feelings / handling those of others
Managing own time and task prioritisation
Writing instructions, reports, etc.
Average increase by skills type
Basic numerical skills
% pts
Reading / understanding instructions, reports, etc.
6
People and personal skills
8
Technical and practical skills
Investing in skills should be a key part of supporting workers, including for basic skills Basic skills, difference between 2017 and 2015 , Main people and personal skills shortages
4
2
14
Participation in lifelong learning has declined 35 30
%
Participation in lifelong learning 2019
2012
25 20 15 10
0
SVK GRC POL TUR HUN LTU LVA CZE ITA BEL DEU PRT ESP EU27 SVN IRL AUT GBR LUX NOR FRA NLD EST ISL DNK FIN CHE SWE
5
Source: Eurostat, based on the EU Labour Force Survey.
15
Low-skilled and own-account workers receive less training Difference in training rates between full-time permanent workers and own-account workers
Source: OECD (2019), Going Digital: Shaping Policies, Improving Lives, and OECD Employment Outlook 2019: The Future of Work and Survey of Adult Skills (PIAAC).
GBR
USA
OECD
CAN
0
JPN
0
16-65 years-old, 2012 or 2015
FRA
8
% pts
DEU
5
GBR
16
JPN
10
USA
24
FRA
15
OECD
32
CAN
20
ITA
40
DEU
% pts 25
ITA
Difference in training rate between low-skilled and other workers
16
Poverty rates are highest among households out of work and single parents 30
Severe material deprivation rate, 2018
%
%
30
Household type
Age
Source: Eurostat (2020), EU Statistics on Income and Living Conditions (database).
Unemployed
Inactive
0
Not employed
0
Self-employed
5
Employed
5
Retired
10
Aged 65+
10
Aged 25-49
15
Aged under 18
15
Single with dependent children
20
Single
20
Two or more adults with dependent children
25
Total
25
Work statusยน 17
Easing access to childcare will help to foster female participation and social mobility Average weekly hours for children in early childhood education and care 0 to 2-year old, 2017 or latest year
40 30 20
0
NLD GBR CHE NZL AUT IRL ESP GRC ITA OECD BEL FRA FIN DEU SWE LUX HUN NOR EST DNK POL SVN ISL LVA PRT
10
Source: OECD Family Database (http://www.oecd.org/els/family/database.htm).
18
The crisis is an opportunity to green the economy B. Share of CO2 emissions by sector
A. CO2 intensity CO2 per GDP, production-based
kg/USD, 2015 PPP 0.40 United Kingdom 0.32
% of total 100
OECD
Agriculture and fishing
80
2018
0
2016
0.00
2014
Industry
2012
20
2010
0.08
2008
Transport
2006
40
2004
0.16
2002
60
2000
0.24
Commercial and public services Residential
2002
2017
United Kingdom
2002
2017
OECD
Source: OECD Green Growth Indicators database and IEA CO2 emissions from fuel combustion database.
Electricity and heat producers
19
Recommendations to support the recovery • Ensure support is available and adapted as needed based on epidemiological and economic developments, while not hindering the reallocation of resources towards firms and sectors with better growth prospects. • Consider introducing more targeted measures. Keep monetary policy accommodative until there are clear signals of price pressures. • Further increase active labour market spending to displaced and low-skilled workers. Use well-designed in-work benefits to support low-income earners. Strengthen efforts to make good-quality childcare less costly. • Continue effort to reduce emissions in the transportation sector. Align carbon pricing across sectors and fuels and eliminate incentives to develop oil and gas fields. Continue to give fuel poverty full consideration. • Once the recovery is firmly established, address the remaining structural deficit and put the public debt-to-GDP ratio on a downward path 20
FOSTERING PRODUCTIVITY IN SERVICE SECTORS
21
The productivity shortfall is larger in the United Kingdom than in most economies Deviation of the level of productivity from the pre-crisis trend path 2019 or latest year 20
%
10 0 -10 -20
-40
ESP IRL DNK AUS NZL ITA ISR PRT CHE CAN BEL DEU MEX JPN TUR AUT FRA CHL OECD KOR LUX NLD USA POL ISL GBR FIN NOR SWE SVN SVK CZE HUN LTU GRC
-30
Source: OECD calculations based on OECD (2020), OECD Productivity Statistics (database).
22
Services sectors account for a large share of the productivity shortfall Sectoral contribution to productivity shortfall relative to 1997-2007 trend growth 100
%
Manufacturing
Services
Other sectors and sectoral allocation
80 60 40 20 0
United Kingdom (2016)
OECD average excl. UK (2016/17)
Note: Based on the decomposition formula of shift-share analysis. For the OECD aggregate, unweighted average of 19 countries excluding the United Kingdom. Source: calculations based on OECD (2019), OECD National Accounts Statistics and OECD Structural Analysis Database.
23
Productivity varies widely across service industries Real value added per hour worked in GBP, 2019 75
60
45
30
15
0
Total services
Non financial services
Financial services
Information and communication
Distribution services
Source: OECD calculations based on ONS (2020), "GDP output approach – low-level aggregates", May, and "Productivity jobs, productivity hours, market sector workers, market sector hours", April.
24
Leaving the Single Market will reduce service sector productivity into the long term Impact on productivity of leaving the EU Single Market Difference compared to current situation, per cent 0 -1 -2 -3 -4 -5
Wholesale & retail; trade, motor trade, motor vehicle repair
Transport & storage
Information & communication
Finance & insurance
Professional scientific and technical activities
Note: In the simulation, restrictions to service trade raise from the intra-EU level to the most-favoured nations (MFN) level. Source: Calculations using Kim, Mourougane and Baker (forthcoming).
25
Both public and private investment have been low Total investment 30
% of GDP United Kingdom
Germany
France
United States
26 22 18
10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
14
Source: OECD (2020), OECD Economic Outlook: Statistics and Projections (database).
26
A very low share of infrastructure spending is allocated to digital 80 70
Decomposition of investment by sector
GBP, billion Transport
Energy
Utilities
GBP, billion
Digital infrastructure
Otherš
80 70
60
60
50
50
40
40
30
30
20
20
10
10
0
2018-19
2019-20
2020-21²
Source: Infrastructure and Projects Authority, "Analysis of the national infrastructure and construction pipeline", Policy paper, November 2018 and "National infrastructure and construction procurement pipeline 2020/21, June 2020.
0
27
Spending on research and development is lower than the OECD average Research and development expenditure, 2018 or latest year % of GDP 5
% of GDP 5 4
3
3
2
2
1
1
0
0
MEX CHLยน LVA SVK LTU TUR IRL GRC LUX POL ESP PRT NZLยน ITA EST HUN CAN GBR AUSยน CZE SVN OECDยน ISL NOR NLD FRA FIN BEL USA DNK DEU AUT JPN SWE CHEยน KOR ISR
4
1. Unweighted average for the OECD aggregate. 2017 for Australia, Chile, New Zealand and Switzerland. Source: OECD (2020), Main Science and Technology Indicators (MSTI database).
28
Productivity can be supported through digital adoption Impact on firm productivity of closing one-fourth of the Impact on MFP gap with best performing countries after 3 years, %
2.5 2.0 1.5 1.0 0.5 0.0
Higher use of Upgrading Easier high-speed skills (technical financing for broadband and young managerial) innovative firms
Higher use of e-government
Reducing barriers to digital trade
Reducing regulatory barriers to competition and reallocation
Note: Estimated impact on the multi-factor productivity (MFP) of the average firm of a range of policy and structural factors which are found to support the adoption of new technologies. Source: Sorbe et al. (2019), "Digital dividend: policies to harness the productivity potential of digital technologies".
29
Recommendations to boost productivity in the service sectors • Prioritise digital infrastructure, particularly in deprived regions, in the allocation of the planned increase in public investment. Ensure sound governance of infrastructure investments. • Ensure continuity in government support through the Industrial Strategy, a multidimensional approach to boost investment, innovation and skills intended to foster productivity growth. • Refine the competition framework to adapt it to the digital economy: enable greater personal data mobility and systems with open standards; adopt a broader approach to merger assessment including an evaluation of the overall economic impact of mergers. • Ease-land use regulations to seek the right balance between improving resource allocation, and environmental and social concerns. • Develop digital skills of low-skilled workers, including through further increasing public spending on training. 30
PREPARING FOR LEAVING THE EU SINGLE MARKET AND CUSTOMS UNION
31
The United Kingdom is deeply integrated in the European Union Exports and imports of goods and services, 2018 B. Main trading partners: Imports
A. Main trading partners: Exports
USA
USA Rest of the world
China
Rest of the world
China
Norway
Switzerland Germany Germany Netherlands
Netherlands
Spain Belgium Italy
France
Ireland
Ireland
Source: ONS (2019), "UK Balance of Payments, The Pink Book: 2019".
Italy
France Belgium
Spain 32
A no-deal exit from the EU Single Market is a risk Exports, percentage difference between the a no deal and the current situation in the medium term
% 0 -10 -20 -30 -40 -50
Source: OECD METRO model.
33
Firms will have to adapt to higher trade costs after the exit from the EU Single Market Difference compared to current situation, medium term
0
A. Output loss
%
% pts 0
-1
-1
-2
-2
-3
-3
-4
-4
-5
FTA
+ end of free movement of people
Source: Arriola et al. (forthcoming).
+ further services liberalisation
-5
B. Contribution to output loss
Increase Rules Non-tariff FTA border of origin barriers costs on goods
+ end of + further free services move- liberalment isation of people
34
-20
Source: Arriola et al. (forthcoming).
Natural resources incl coal and petroleum products
Pharmaceutical products
Minerals, metals, and metal products
Transport
Communication
Exports
Financial services and insurance
Construction
Trade
Machinery and equipment, not elsewhere classified
Other manufacturing
0
Business services, not elsewhere classified
%
Agriculture and food
5
Motor vehicles, parts, and transport equipment Textiles, wearing apparel, and leather products Chemical rubber plastic products Computer, electronic and optical products
Sectors will be impacted differently by the exit from the Single Market Difference FTA compared to current situation, medium term Imports
-5
-10
-15
35
Regions will be impacted differently by the exit from the Single Market Share of regional employment by sector, 2019 100
%
London and South East
7 English regions excl. London and South East
Scotland
Wales
Northern Ireland
% 100
80
80
60
60
40
40
20
20
0
Agriculture, forestry and fishing
Manufacturing
Source: ONS (2020), "JOBS05 Workforce jobs by region and industry.
Distribution services
ICT, finance and insurance
0
36
Recommendations : Leaving the EU Single Market and Customs Union • Keep low barriers to trade and investment with the European Union and others, particularly market access for the service sectors including financial services
• Enhance communication on a no-deal exit from the European Union. Prepare targeted support to firms and workers that may suffer the most. Put in place trade facilitation measures to smooth disruptions at the border.
37
For more information
http://www.oecd.org/economy/united-kingdom-economic-snapshot/
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38