ArticlesByValentinaRomei: June 2016

Friday 10 June 2016

Eastern Europe has the largest population loss in modern history

| May 27 14:10 | 6 comments |

Eastern Europe’s population is shrinking like no other regional population in modern history.

The population has declined dramatically in war ridden countries like Syria as well as in some advanced economies in peacetime, like Japan. But a population drop throughout a whole region and over decades has never been observed in the world since the 1950s with the exception of Southern Europe in the last five years and Eastern Europe over the last 25 consecutive years.

The UN estimated that there were about 292 million people in Eastern Europe last year, 18 million less than in the early 1990s, that’s more than the population of the Netherlands disappearing from the region. The fall corresponds to a drop of six per cent, give or take.

The contraction began after the fall of the Soviet bloc and accelerated until the early 2000s when it began to slow down.

Emigration

Emigration is one of the main reasons behind the decline. Eastern Europeans migrated to Western Europe, enticed by the prospect of higher earnings and better welfare systems. The main destinations for Poles, Latvians and Lithuanians were the UK and Ireland. Estonians left for Finland, Romanians went to Italy and Spain. More recently, Norway has emerged as a popular destination.

But this is not only a story of emigration made possible by the enlargement of the European Union. People from the region had begun emigrating even before Accession, and countries that are not part of the union have also seen a strong outflow.

Romania, for example, lost 9 per cent of its population in the fifteen years to 2005. In 1990 alone, nearly 100,000 Romanian citizens settled permanently abroad, with similar figures in the following few years. According to an OECD report, in the early days Romanian emigration largely concerned ethnic minorities. Most recently, it’s been job seekers. By 2007- the year in which Romania joined the EU- the majority of Romanian emigrants had already left the country.

Similarly, Bulgaria- which joined the EU in the same year- had a net migration rate of over eight per thousand in the first half of the 1990s, which progressively decreased to just over 1 per thousand in the last five years.

Albania, which is not an EU member, experienced an even larger outflow of migrants.

Falling fertility

Those who stayed started having fewer children. Eastern European women had an average of 2.1 children each in the late eighties. Ten years later this had dropped to 1.2.

Economic and political uncertainty in the post-Soviet era had a significant effect on fertility rates, along with the absence of an adequate welfare system.

Although other countries, like Germany, experienced a similar drop in fertility, the effect is much bigger in countries which do not have similar levels of immigration. The result is that from the mid-1990s in most Eastern European countries deaths outnumbered births.

Institutions have started firing alarm bells

When the OECD looked into the impact of emigration in the Baltic and Eastern European countries it raised alarm over the long-term economic impact:

“While this [emigration] served as a safety valve in a time of poor employment opportunities and led to high levels of remittances, the longer term implications appear less positive: smaller working-age population, loss of educated youth, and skills shortages.”

The European Commission shares similar concerns. This is what it said of Romania:

“Strong outward migration, including of the highly-skilled workers, coupled with an ageing population represent a challenge to support a competitive economy.”

It is Eastern European countries which will suffer the steepest drops in the size of working-age population within Europe, according to the European Commission. By 2060 they will have the highest “old age dependency ratios”- meaning the proportion of older, inactive citizens relative to workers – in the region.

Policies are not helping much

Most Eastern European countries took measures to reverse these trends in fertility and emigration, with poor results. Poland gave cash benefits to those who had two or more children, one of many family policies trashed by Oxford University.

“The majority of extant family policies in CEE countries suffer from a variety of shortcomings that impede them from helping to generate optimal family welfare and to provide conditions for cohort fertility to increase,” the study says.

The OECD delivered a similar verdict for policies aimed at making emigrants return:

“Return policies have met with limited success (..). Job fairs aimed at emigrants from Romania did not lead to many returns. Polish programmes to bring back emigrants were stymied by insufficient planning, by negative economic conditions and by the requirement not to favour returnees over non-migrants.”

The narrowing of the wealth gap – more effective

Most Eastern European economies are growing at an incredibly rapid pace, largely because they’re catching up.

What this means is that the difference in GDP per capita with Western Europe is narrowing. Broadly speaking, improving conditions in the region should reduce the incentives to emigrate. Better job opportunities and higher wealth should also lead to higher fertility rates.

The GDP per capita of the Czech Republic, Slovenia and Slovakia is now about eighty per cent or over that of the European Union. It used to be 50 per cent in Slovakia in the mid-1990s.

All these countries have seen their populations expand in the last decade.

But in poorer countries like Romania, Bulgaria, and Albania the size of the population is still declining.

How Italy got in (and out of) the debt trap

Valentina Romei

| May 19 08:15 | 7 comments |

This week the European Commission let Italy off the hook, granting the country extra flexibility – to the tune of 14 billion euros – in its debt reduction targets for 2016.

The extra “flexibility” includes allowances for investments (0.25 per cent of GDP), for the refugees crisis (0.04 per cent of GDP) and for extra security measures (0.06 per cent of GDP). In return the Commission wants a ‘clear and credible commitment’ from Italy that the country will respect its budget targets in 2017.

How did Italy get to this point?

Italian public debt currently stands at 132.7 per cent of GDP – the second highest in Europe after Greece.

In the eighties Italian debt rose by 38 percentage points and by 1990 it had reached 92 per cent of GDP. It then experienced the largest drop in the post- World War II period and rose again after 2007, albeit for different reasons.

The legacy of the eighties

The debt explosion of the 80s is, at least in part, a story of bad management of public finances.

“The influence of political parties (..) has contributed to the widespread inefficiencies, to the proliferation of external technical bodies and to the fragmentation of public administration”, a 1997 OECD country survey explains.

Public expenditure was high also because of “inadequate controls, poor co-ordination among procurement agencies and collusion between suppliers and administration.” But this is just one part of the story.

In the eighties, the Bank of Italy introduced high policy rates- at 19 per cent compared to 7.5 per cent in Germany- as a way of reducing fluctuation in exchange rates ahead of the introduction of the single currency. But they also resulted in very high interest payments on the debt.

Despite the waste in the public finances, Italian government spending excluding interest payments increased less than other major European economies.

But, contrary to other European countries, in Italy the tax increases needed to finance this expenditure were delayed.

The result was a budget that for sixty years was never in surplus and that reached its worst levels -12 per cent of GDP – in the mid-eighties.

Italy finally reached a surplus in its fiscal balance (excluding interest payments) in 1992 thanks to a series of measures of fiscal consolidation. It has remained positive ever since, with the exception of 2009.

What now?

With around 4 per cent of GDP still being spent on paying interest on public debt – that’s double the OECD average and nearly four times what Germany pays – the overall budget is still in deficit.

A reduction in debt-to-GDP ratio is expected by 2017 – this should result in a further shrinking of interest payments, assuming interest rates remain low.

This would leave room for “some tax cuts or growth in non-interest expenditure” as the OECD wrote in its latest country survey, which could be crucial in fostering economic growth.

Economic growth is key

“Economic growth is the way out of the debt trap” explains Lorenzo Codogno, visiting professor at the LSE, chief economist at Micro Advisors and former director general at the Treasury of the Italian Ministry of Finance.

Indeed, the size of the economy is the denominator that inflates the debt-to-GDP ratio in times of falling economic output.

In the period which saw the fastest reduction of the debt-to-GDP ratio, real public debt actually increased more rapidly than after the global economic crisis.

But with sluggish economic growth, even milder increases in debt have resulted in a steep rise of the debt-to-GDP ratio.

But fostering growth is difficult

Measures of fiscal consolidation might reduce aggregate demand, and thus impinge on overall economic performance, although this is a controversial issue.

But Mr Codogno argues that “the issue of aggregate demand is much smaller now compared to 2011-2012. Economic growth should be promoted via structural reforms, rather than short term support to demand”.

Current and previous governments have already cut spending and “there are no low-hanging fruits left”. According to Mr Codogno the time has come to reduce public spending by “restructuring the way the government offers its services to citizens”. Reforms of public administration are underway, but “there are still plenty of inefficiencies that could be reduced”.

Italian debt is sustainable

“In the long term Italian public debt is one of the most sustainable in Europe”, argues Mauro Pisu, senior economist at OECD. Along with a series of measures intended to accelerate economic growth, he believes the cut in public spending, particularly on pensions, and a primary surplus among the highest in Europe have ensured this.

But Italy needs to get ready for when interest rates will go back to ‘normal levels’ resulting in higher interest payments and a budget which will be harder to balance.

Promising forecasts on the debt-to GDP ratio indicate that the country is on the right path out of its debt trap. Hopefully it’s also proceeding at the right speed.

Life is short…for Americans

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Life is short…for Americans

Valentina Romei

| May 14 07:00 | 6 comments |

Life expectancy has increased sharply across advanced nations over the last fifty years. In 2014, people residing in OECD countries were, for the first time, expected to live beyond 80 years according World Bank data. That’s 13 years longer than in 1960.

But not all countries improved at the same pace

In the 60s the US had one of the highest life expectancies in the world, with residents living three years longer than the average for OECD nations.

However something happened in the mid-1980s; though life expectancy continued to improve, the US started lagging behind its peers.

A lower life expectancy in the US is particularly surprising when taking into account the fact that Americans tend to spend far more per head than all other OECD residents.

The US had one of the highest life expectancies in the world, now it’s playing catch-up. What went wrong?A highly fragmented health system, for one. One in ten people still don’t have health insurance, although the introduction of Obamacare has led to massive improvements in this front.

Obesity is also a factor behind the slower progress. In the US one in three adults are obese, the highest rate of any advanced country.

But there are other behavioural factors, such as higher consumption of prescription and illegal drugs, a higher rate of traffic-related deaths and higher homicide rates.

Americans are also poorer than most of their OECD counterparts
America has higher rates of poverty and income inequality than most other OECD countries.

It’s well-known that in Italy, Japan and Spain, people live longer than anywhere else in the world. For the Japanese this is largely thanks to a diet rich in fish, universal health care (‘kaihoken’) and other cultural factors. However a changing diet along with a rise in suicide rates has meant that Japan has been overtaken by Italy and Spain in recent years.

Mediterranean countries continue to features prominently among life expectancy rankings, with the Italian island of Sardinia identified by academics as experiencing “extreme longevity”.

Discontent among UK teachers drives recruitment crisis

Valentina Romei

| May 13 05:11 | 3 comments |

“Start a new rewarding career this September” writes the Department for Education on a website inviting people to become teachers, “places are still available.” They might be available for a long time, if data on teachers’ satisfaction, recruitment and retention is to be considered.

UK teachers were the least satisfied in an OECD survey of 5 million teachers across 34 advanced economies carried out in 2013. That’s ten percentage points less satisfied than the average.

And the mood seems to have deteriorated

Last year 67 per cent of teachers reported declining morale, and more than half were considering leaving the profession.

These days an even higher proportion of teachers – 83 per cent – is thinking of quitting according to research by the Association of Teachers & Lecturers (ATL) released in March.

Heavy workload

“Workload is a real issue” says Dr Mary Bousted, general secretary of ATL, in an interview with the Financial Times. “Experienced teachers are leaving the profession because they can’t stand the workload and the stress anymore.”

This finding is confirmed by teachers’ surveys which show that the volume of workload is the key reason for teachers planning to leave the profession.

Teachers in England spend more time in the classroom than most of their international peers. Moreover, in England teachers spend an average of 14 hours per week planning lessons and marking homework, that’s three hours longer than in the average of the OECD.

UK teachers are also burdened by “bureaucratic nonsense”, as Dr Bousted put it, referring to the time spent filling forms for accountability reasons.

Although the government has attempted to cut down on the workload by, amongst other measures, reducing the number of compulsory reports and plans for inspectors, the new curriculum and new policies “are placing a significant workload on teachers for the next 2 years” schools minister Nick Gibb admitted in a speech to the Association of School and College Leaders last month.

A curriculum which is “not fit for purpose”

The aim of the government’s curriculum reforms is to allow “all children, not just the offspring of the wealthy and privileged [to be] able to write fluent, cogent and grammatically correct English”.

But the majority of the teachers, and 70 per cent of head teachers, believe it is not fit for purpose. And three in four teachers believe that the policies behind the school curriculum and pupil assessments were narrow and uncreative.

“We have primary and secondary school curriculum that is highly inappropriate and ridiculously difficult”, says Dr Bousted. “A whole range of education experts, and teacher professionals, are opposed to the current curriculum and tests’”.

Other reforms were also poorly received by most teachers

Most teachers didn’t think that the proposed baseline tests for reception pupils would give a reliable measure of their progress.

And only a minority of British teachers (17 per cent) thought that turning schools into academies – independent, state-funded schools, which receive their funding directly from central government – would improve standards.

Both proposals were scrapped.

Government U-turns

So with reforms being introduced and scrapped it’s hardly surprising that the rapid pace of policy changes is why a third of teachers are considering leaving the profession.

Leaked tests being published and the delay in publishing a syllabus also add to the ‘storm of discontent’, as Dr Bousted called it, affecting UK teachers.

This leads us to a teacher shortage

Is the teachers’ discontent only temporary and linked to the “chaotic” implementation of reforms or is it a sign of more structural problems? It’s hard to say. Meanwhile, the teaching roles advertised are likely to remain unfilled.

Indeed in 2013 UK teachers had fewer years of working experience than most of their OECD counterparts. They were also generally younger, which suggests a lower retention rate within the profession.

In 2014, nearly 36,000 qualified teachers left the profession before retiring, 13 per cent more than in the previous year.

The number of vacancies more than tripled from 500 in 2011 to well over 1,700 in 2014.

This year recruiting targets were met in just three subjects: history, English and physical education. The remaining fourteen subjects faced a shortage of teachers including seven per cent gap in Maths, according to the National Audit Office.

Widening discontent

“Interestingly now, opposition is also coming from parents” says Dr. Bousted. And there are plenty of signs of this happening.

The recent strikes over the new SATs test, with nearly 69,000 people signing apetition to scrap it, point to discontent spreading beyond the profession.

Lithium price on the rise

Valentina Romei

| Apr 14 15:24 | 2 comments |

Commodities prices are generally falling but lithium spot price tripled in the past year, driven by demand for batteries used in electric cars and devices.

The price paid by companies for long-term contracts has presented a less dramatic rise than the spot Chinese lithium price, although lithium carbonate contract prices are still 50 per cent higher than in 2014.

Telsa, the car manufacturer, will contribute to the rising demand as it builds the largest battery plant in the world in Nevada, capable of producing up to 500,000 lithium-ion vehicle batteries per year. The plant is expected to produce finished battery packs from raw material by 2020.

According to data from the US geological survey, most lithium production comes from Australia and Chile, where production more than doubled in the last six years, while production in Argentina increased by 17 per cent in the last year.

However, operations are also under development in Bolivia, the US, Canada, Finland, Serbia and Mexico.

Bolivia has the largest identified reserves in the yet undeveloped Salar de Uyuni, the largest salt flat in the world, where Chinese and German technologies are helping develop the country’s nascent industry.

However, due to its the dry-desert climate Chile is a better suited to lithium production especially in what is known as the “lithium triangle”, an area of high-altitude lakes across Chile, Argentina and Bolivia which accounts for over half of the world’s known reserves of lithium.

While Telsa makes the news, much of the demand comes from Asia. Thanks to its large electronic manufacturing production China is leading lithium consumption, tapping on its own production in Tibet as well as on imports. According to data from the International Trade Centre, China is the second largest importer of lithium carbonates after South Korea. Imports from both countries doubled in the last five years.

China and South Korea also attract the largest amount of foreign capital invested in lithium-related greenfield projects, those where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up. In the last eight years they each attracted a total of $2bn, according to fDI Markets.

The government of South Korea partnered with several mining companies in order to secure stable long-term supplies of lithium for its expanding automobile, electronics and battery industries. Conversely, Japanese lithium carbonate consumption decreased largely because the move of battery manufacturing plants from Japan to China and Indonesia, according to the US Geological Survey.

Lithium is used as much in the production of ceramics and glass as it is in the production of batteries, but it’s the increasing reliance on the latter that underpins expectations of a “lithium revolution”. This has yet to happen, but the massive rise in lithium price suggests it is within reach.

Experts raise alarm over rise in “open data inequality”

Valentina Romei

| Apr 21 06:00 | Comment |

While the UK can cheer for being nominated for the second year in a row the most open country in the world for data transparency, a warning has been sounded over the widening gap between data haves and have-nots.

Advanced economies top the list of most transparent

A report by Open Data Barometer, an initiative of the World Wide Web Foundation, has shed light on the emerging divide in data transparency between developed and developing countries.

The top 15 positions are held by high-income countries like the US, which ranks in second position, and countries such France, Denmark and Canada.

The most open emerging economy in the world is then Mexico, ranking 16th, according to the third edition the report which was released on Thursday.

Out of the ten bottom positions of the ranking seven are held by Sub-Saharan countries, including Zimbabwe which moved down 14 positions despite a relatively strong economic performance.

The stark polarisation alarmed those concerned about the widening gap in what has come to be known as data inequality. It’s a risk which was also raised in a recent UN study on the “data revolution”:

“Without action, a whole new inequality frontier will open up, splitting the world between those who know, and those who do not.”

Signs of progress?

Open Barometer has identified some improvement among emerging countries.

The Philippines, for example, moved up 17 spots in the rankings to the 37th place, while Colombia improved by 12 spots to the 28th.

José Alonso, Director of the Web Foundation Open Data Programme, told the FT that although both countries introduced open data policies in place for the last few years, compared to 2014 we have seen a large increase in the amount of data available, particularly in the transport and environment sectors.

“In Colombia you could not find trade or election data online just a few years ago; now it’s there” Mr. Alonso said.

No Sub-Saharan country among the fastest improvers

Of the 92 countries surveyed, Kenya is the most data accessible and the one showing the fastest progress in Sub-Saharan Africa, with 7 positions gained in the last year as it reached the 43rd spot.

“The improvements have however been volatile and initiatives are embraced and abandoned with little continuity” Mr Alonso says.

Openness of data is seen largely as a technical and infrastructural issue, rather than a policy tool, as in the case of the ‘Ghana Open Data Initiative’ launched in 2012 by the Web Foundation. The project ended in 2013 and Ghana slipped 24 positions to 72nd this year.

Many sub-Saharan African countries face a crucial hurdle: the data just isn’t there, not even in paper format. According to Alonso in many of these countries NGOs and local communities have much better data than the government.

A uphill trek for open data

Of the 1,380 datasets scrutinised by the Open Barometer only 10 per cent were fully open. However, even when existent, data is often not easily accessible. It was not always machine readable, could not be downloaded in bulk, and sometimes was not free or up to date.

“Data are the lifeblood of decision-making and the raw material for accountability”,according to the UN. As such, they are decisive in designing, monitoring and evaluating policies.

But changes in the way data is made available are not cheap, quick or easy to implement, explains Mr. Alonso, and many sub-Saharan countries don’t have sustainable resources for long-term open data policies.

France’s economic woes in charts

Valentina Romei

| Apr 28 08:41 | 102 comments |

As the world faces a slowdown in economic growth, we look at what is happening in France and it’s not looking good.

France is one of the worst performing economies in Europe

As details of countries’ economic performances in the first quarter of 2016 are released, few will be surprised to find that France’s economic growth will turn out to have been weaker than most other European countries.

This is whether we look at countries that are re-bounding after a deep and prolonged economic crisis, such as Spain, or those that recovered much quicker, like the UK and Germany.

Slow growth has been the case for a while: economic growth in France has been sluggish in the past few years, and indeed if we look at how things have fared since the beginning of 2014 France become the worst performer among the major European economies, excluding Italy.

Since 2014 France has not been able to create jobs

Of course weak economic growth has shattered the labour market.

Stephane Carcillo, senior economist at the OECD’s Directorate of Employment, in an interview with the FT explains the effect slow economic growth can have on the labour market: “In France it takes a minimum GDP growth of 1.5 per cent to stabilize unemployment and around of 2 per cent to see a decline of unemployment”.

With economic growth far below an annual rate of 2 per cent, the unemployment rate rose above 10 per cent in the third quarter of 2014 and never quite recovered, in stark contrast with falling unemployment rates across the eurozone.

Since the start of 2014, France has not been able to create jobs. While in the UK the number of people in employment increased by 3 per cent and by nearly 2 per cent in the eurozone, in France it actually fell.

What happened here? It has to be noted, says Mr. Carcillo that during the crisis France did not endure the same “job destruction as other countries like the UK, Spain and Italy”, but structural problems play a role too.

Reforms are on the way

High labour costs and France’s ‘dual labour system’ whereby employees with permanent contracts enjoy very high protection while everyone else is in precarious work. These are among the factors hampering employment growth, according to the IMF.

A number of initiatives sought to help businesses and reduce labour costs. Among them a reduction in employer social security contributions under the Responsibility and Solidarity Pact (PRS), and a new tax incentive known as CICE.

Mr. Carcillo also recalled a recent initiative which removed social contribution for minimum wages, a promising move because it targets a segment very sensitive to cost reduction.

Another reform – currently discussed in parliament- is aimed at reducing uncertainty over layoffs and “could potentially increase the job potential of economic growth in France” says Mr Carcillo. France is one of the few countries in Western Europe where judges can rule over whether the decision of a company to cut staff numbers is justified, resulting in high uncertainties.

Everyone is feeling more insecure and they’re investing less

There’s more.

The Bank of France is concerned that a lack of investment is holding up the recovery. Investment hasn’t been growing in France since the start of 2013, while the UK and Spain have benefited from a 15 and 12 per cent rise, respectively. Among the major economies only Italy has a steeper contraction in investments than France.

Thankfully the Bank of France expects business investments to recover thanks to tax incentives introduced over the last few years. But household investment is a whole other story.

Because of the economic uncertainties and the feeble wage growth, explains Diego Iscaro, a senior economist at IHS in an interview with the Financial Times, households are saving more than in other European countries and investing less. And since low oil prices are no longer providing as much of a lift to household purchasing power, household investments are expected to remain weak.

Indeed French consumers are the most pessimistic among the major European economies, according to the survey of the European Commission.

Terrorist attacks and a wave of protests linked to labour market reforms are not helping recover optimism.

The battle to reinforce competitiveness

We have come to what is a familiar issue in France: longstanding bottlenecks, extensive regulation and barriers to competition in services hinder competitiveness.

According to the OECD France needs to enhance competition in the products market by reducing the web of norms and regulations, especially in retail trade and regulated professions.

Both in the labour market and in the product markets the OECD stresses that:

“regulations and institutions are too complex and in many respects ill-designed to maintain competitiveness and generate higher living standards”.

France has become less competitive since the crisis compared to Spain, Portugal or Germany. And this is what it has done to exports growth:

Yes, French export performance has improved in the second part of last year, but it still constitutes a drag in total economic growth.

French GDP growth for this year and for 2017 is expected to remain below that of the eurozone average and far below the growth expected in the UK or the US, according to Consensus Economics, a survey of over 250 prominent financial and economic forecasters.

And while the government is taking measures to stimulate the labour market and the country’s economic growth, “the problem is the pace of reforms” Mr. Iscaro concludes.