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Iceland-2015-stability-and-productivity-reykjavik-1-september

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Iceland 2015 stability and productivity Reykjavik 1 September

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Iceland-2015-stability-and-productivity-reykjavik-1-september

  1. 1. www.oecd.org/eco/surveys/economic-survey-iceland.htm OECD OECD Economics 2015 OECD ECONOMIC SURVEY OF ICELAND Stability and productivity Reykjavik, 1 September 2015
  2. 2. Thanks to: • A substantial depreciation of the krona. • The tourism boom. • Higher consumer income and lower debts. 2 The economy is recovering steadily 800 900 1000 1100 1200 1300 1400 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Real GDP Billion ISK Source: OECD, Economic Outlook 97 database and long term baseline
  3. 3. 3 How’s life in Iceland? Good overall 0 1 2 3 4 5 6 7 8 9 10 Income and wealth Jobs Housing Work-life balance Health EducationCommunity Civic engagement Environment Safety Life satisfaction Iceland OECD
  4. 4. 4 Wage inequality is low Note: Interdecile ratio (P90/P10) of gross earnings. Source: OECD Labour Force Statistics - Decile ratios of gross earnings 0 1 2 3 4 5 6 0 1 2 3 4 5 6 ITA SWE NOR BEL FIN CHE DNK NZL NLD ISL JPN FRA LUX GRC SVN ESP AUS DEU AUT CZE GBR SVK PRT CAN IRL POL EST HUN KOR TUR ISR USA Interdecile ratio P90/P10 Interdecile ratio P90/P10 Icelandic high-income workers earn three times as much as low-income workers
  5. 5. 5 Lifting capital controls, while preserving stability
  6. 6. 6 Foreign-owned ISK “overhang” declining, but still large Source: Central Bank of Iceland
  7. 7. • The government’s plan to lift capital controls is a welcome step in the right direction. • Macroeconomic stability will be crucial to minimise the risk of disorderly capital outflows. • The voluntary approach to winding up the failed banks will facilitate the return to global capital markets. 7 How to lift capital controls?
  8. 8. 8 Wage increases will push up inflation Note: The projections assume interest rates hikes and monetary policy credibility facilitating inflation moving back to target. Source: OECD, Analytical database, Central Bank of Iceland and Statistics Iceland. 11 12 13 14 15 16 Real wages s 0 2 4 6 8 10 12 14 16 18 20 2003 04 05 06 07 08 09 10 11 12 13 14 15 16 Core inflation CPI B. Inflation Y-o-y % change
  9. 9. • Focus monetary policy on low medium-term inflation. • Build up financial and fiscal buffers. • Safeguard the independence of the Central Bank. • Strengthen macro prudential tools. 9 How to enhance economic stability?
  10. 10. 10 The budget deficit has been eliminated Source: OECD, Economic Outlook 97 database % of GDP General government net lending
  11. 11. 11 But it wouldn’t take much for public debt to rise again Scenario 1: Budget deficit kept at 0% Scenario 2: Budget deficit kept at 0% and financial assets amounting to 30% of GDP used to repay debt Scenario 3: Budget deficit of 2% of GDP after 2016 Source: OECD, Economic Outlook database and OECD calculations. 20 40 60 80 100 120 20 40 60 80 100 120 2000 05 10 15 20 25 30 35 General Government Gross Debt (% of GDP) General Government Gross Debt (% of GDP)
  12. 12. • Adopt organic budget law, including fiscal rules. • Establish an independent Fiscal Council. • Use assets to pay down costly debt. • Avoid building up new contingent liabilities, such as HFF. • Shift tax from income to VAT. 12 How to ensure fiscal sustainability?
  13. 13. How to revive productivity? 13
  14. 14. 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 2000 02 04 06 08 10 12 14 Growth rate (%) Growth rate (%) 14 Labour productivity growth has stalled Source: OECD, Analytical and Economic Outlook databases; Labour Force Statistics and Productivity databases.
  15. 15. 0 20 40 60 80 100 120 0 20 40 60 80 100 120 Norway Denmark Sweden Finland Iceland OECD Index USA = 100Index USA = 100 15 And productivity is relatively low Labour productivity (average 2009-2013) Source: OECD, Analytical and Economic Outlook databases; Labour Force Statistics and Productivity databases
  16. 16. 16 Barriers to entrepreneurship are high 0.0 0.5 1.0 1.5 2.0 2.5 0.0 0.5 1.0 1.5 2.0 2.5 Note: Index scale of 0-6 from least to most restrictive. Source: OECD, Product Market Regulation indicators database. The OECD Indicators of Product Market Regulation (PMR) are a comprehensive and internationally-comparable set of indicators that measure the degree to which policies promote or inhibit competition in areas of the product market where competition is viable.
  17. 17. 17 Especially regulatory and legal barriers 0 1 2 3 4 5 0 1 2 3 4 5 Licences and permits system Rules and procedures² Administrative burdens on startups Complexity of regulatory procedures Legal barriers Iceland OECD¹ 1. The OECD aggregate is an average of data available (25-30 countries depending on the year covered). 2. Communication and simplification of rules and procedures. Source: OECD, Product Market Regulation database.
  18. 18. 18 Less than half of students finish high school on time Note: Successful completion of upper secondary programs within the set time needed to complete. Source: OECD, Education at a Glance 2014 0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100 ITA TUR CHL MEX PRT SVK CZE AUT HUN POL GRC SVN DEU FRA ESP OECD NLD DNK ISL BEL SWE CHE EST NOR LUX FIN IRL NZL GBR AUS KOR USA ISR JPN CAN Only with upper secondary level of education Below upper secondary education A. Educational attainment of 25-64 year-olds, 2012 0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100 KOR JPN IRL SVK ISR USA GRC HUN EST POL SVN CAN SWE TUR OECD AUT BEL FIN NZL GBR ITA CHL MEX NLD ESP DNK FRA NOR ISL % % % %
  19. 19. • Create a productivity commission • Lower legal barriers to entry and regulatory procedures • Use the OECD’s Competition Assessment Toolkit • Support students who are vulnerable to dropping out 19 Adopt a productivity-friendly agenda
  20. 20. More Information… www.oecd.org/eco/surveys/economic-survey-iceland.htm OECD OECD Economics Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. 20

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