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2017/SOM1/GOS/016 Agenda Item: 6.A

Services Trends

Purpose: Information Submitted by: OECD

59th Group on Services Meeting Nha Trang, Viet Nam

24 February 2017

01/03/2017

1

John DrummondHead of Division, Trade in Services

APEC Group on Services

www.oecd.org/trade

24 February, Nha Trang

Item 5 A. i. – Services Trends

Global Economic Context

Services Trade as a Policy Response

Priorities for Action

2

Outline

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GLOBAL ECONOMIC CONTEXT

3

4

Low Growth Trap…

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Note: Horizontal lines show the average annual growth rate of GDP in the period 1987-2007. Data for Russia are for the average annual growth rate in the period 1994-2007.1. With growth in Ireland in 2015 computed using gross value added at constant prices excluding foreign-owned multinational enterprise dominated sectors.2. Fiscal years.Source: OECD November 2016 Economic Outlook database.

Note: Labour productivity growth is output per hour worked at annualisedrate. Source: OECD June 2016 Economic Outlook database; OECD National Accounts database; OECD Productivity database; OECD calculations.

Year-on-year percentage changes Tt

Tt2015

2016

2017

2018

Productivity Growth Real GDP Growth including projections

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3

… widening productivity gap……rising inequality

5

Inequality in incomeReal household disposable income, total population

Productivity diffusion gap

Source: Andrews, D., C. Criscuolo and P. Gal (2016), "The Best versus the Rest: The Global Productivity Slowdown, Divergence across Firms and the Role of Public Policy", OECD Productivity Working Papers, No. 5; Orbis data of Bureau van Dijk.

Note: OECD is the unweighted average of the countries for which data are available. Source: OECD estimations based on Kappeler et al. (2016), “Decoupling of Productivity and Median Wage Growth: Macro-Level Evidence”, OECD Economics Department Working Papers, forthcoming; OECD National Accounts database; OECD Earnings database; OECD Income Distribution database; OECD calculations.

0.0

0.2

0.4

0.6

0.8

1.0

1.2

Productmarket

liberalisation

Two-standard-deviation

reduction inglobal

uncertainty

1% increasein foreigndemand

1% increasein domestic

demand

Real investment remains very sluggish

6

OECD real investment Percentage change after 5 years

Note: Current recovery shows since 2008Q1 including the forecasts in the dotted line. Previous 3 recoveries pre-recession peak in 1973Q4, 1980Q1 and 1990Q3.Source: OECD November 2016 Economic Outlook database.

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7

World trade and GDP growth

Note: World GDP volumes measured at PPP exchange rates. World trade volumes measured at market exchange rates in US dollars.For 2014, world trade average growth for four years to remove the rebound following the crisis.Source: OECD November 2016 Economic Outlook database; and WTO-OECD-UNCTAD 2016 G20 Trade Policy Monitoring Report.

Reviving investment is key for trade … GVCs, and productivity

Global Value Chain indicator

Note: Structural global value chain indicator shown which adjusts for the economic cycle and changes in commodity prices. For further detail see OECD Economic Policy Paper “Cardiac Arrest or Dizzy Spell: Why is World Trade So Weak and What Can Policy Do About It?”. Source: OECD June 2016 Economic Outlook database; OECD STAN Bilateral Trade database; and OECD calculations.

8

Reviving trade is key for productivity… Reversing protectionism; improved productivity

GATT/ WTO Rounds, NAFTA, EU Single Market

Note: Variables 4A and 4B of the Economic Freedom of the World Indexmeasuring tariff and non-tariff barriers. A global measure is constructedfor the purposes of this paper from the individual country series usingGDP weights. The index ranges from 0 to 10 and a higher value indicates amore liberal policy.Source: Fraser Institute for Economic Freedom and OECD calculations.

Market Openness Measure OECD annual productivity growth

Note: The implementing trade facilitation measures scenario shows the impact of a trade cost reduction by 1.3% across all sectors in all countries, an estimate of the global average derived from the OECD’s Trade Facilitation Indicators. The imposing trade restrictions in major economies scenario shows the impact of a goods trade cost increase of 10 percentage points for China, Europe and the United States against all trading partners, equivalent to an average increase in tariffs to 2001 levels, the year when trade negotiations under the Doha Development Round started.Source: OECD METRO model; and OECD calculations.

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SERVICES TRADE AS A POLICY RESPONSE

9

Services Share of GDP

30

35

40

45

50

55

60

65

70

75

80

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

High income Low income Middle income World

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Services value added

11

Share of services in exports, 2011

Services VA in world gross exports, by manufacturing industry, 2011

0%

20%

40%

60%

80%

100%

CH

LM

EXVN

MN

OR

KOR

RO

UM

YSC

HN

RU

STH

AZA

FC

AN AUS

SVK

CZE PH

LBR

ABG

RJP

ND

EUH

UN

POL

SVN

TUR

FIN

ITA

USA CR

IAU

TN

ZL IND

PRT

ISL

ESP

SWE

EST

LTU

ISR

LVA

CH

EFR

AG

BRG

RC

DN

KBE

LIR

LN

LD LUX

Share in value-added terms World average (value-added terms) Share in gross terms

0%10%20%30%40%50%60%70%80%90%

100%Distribution Transport Finance Business services Other

Trade in Goods and Services …two sides of the same coin

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Services Productivity (TPF) by Sector

ISIC 4 Sector UK FRA DEU FIN

C Total Manufacturing 101.57 103.68 106.53 97.43

G Wholesale And Retail Trade; Repair Of Motor Vehicles And Motorcycles

104.26 104.02 105.40 98.62

H Transportation And Storage 105.74 97.37 94.56 113.40

J Information And Communication 98.17 103.98 116.35 117.45

58-60 Publishing, audio-visual and broadcasting activities 105.28 94.92 106.35 88.23

61 Telecommunications 92.87 123.58 106.75 142.75

62-63 IT and other information services 96.40 97.93 127.27 120.12

K Financial And Insurance Activities 86.99 103.34 105.21 103.82

M-N Professional, Scientific, Technical, Administrative And Support Service Activities

109.33 95.14 98.20 95.35

R-S Arts, Entertainment, Recreation And Other Service Activities 102.75 91.88 97.00 89.79

2014Index, 2010=100

Digital Network

Computer

Telecomms

Audiovisual

Supply Chain

Transport

Logistics

Distribution

Trade and Finance

Infrastructure

Legal

Accounting

Financial

Physical Infrastructure

Architecture

Engineering

Construction

Services Interlinkages

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Cross-Border Data Measures

Local Content Measures

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Policy Reforms 2014-2016

0

5

10

15

20

25

30

Policy change 2016

Policy change 2015

Policy change 2014

Sectoral Changes 2014-2016

-0.5

-0.4

-0.3

-0.2

-0.1

0

0.1

0.2

0.3

0.4

Construction

Legal services

Accounting services

Architecture services

Engineering services

Telecomm

unications

Distribution services

Broadcasting

Motion pictures

Sound recording

Comm

ercial banking

Insurance

Air transport

Road freight transport

Rail freight transport

Courier services

Cargo-handling

Storage and warehousing

Freight forwarding

Custom brokerage

Increase in scores across allcountries (2014 to 2016)

Decrease in scores across allcountries (2014 to 2016)

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PRIORITIES FOR ACTION

19

Services and Technology

TelecommunicationsBroadband important for everything in the digital economy

EngineeringImportant input to manufacturing and construction

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Services and Finance

Domestic credit to private sector by banks (% of GDP)

0%

20%

40%

60%

80%

100%

120%

140%

Low STRI Medium STRI High STRI

Net interest margin

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

Low STRI Medium STRI High STRI

0

2

4

6

8

10

12

14

16

18

20

Exports Imports Exports Imports Exports Imports Exports Imports

Martime Logistics cargo handling Logistics storage Road

Day

s

Services and Shipping Times

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Services and SME Trade Costs

0%

5%

10%

15%

20%

25%

30%

500,000 1 million 5 million 10 million 50 million 200 million

Firm Size

(a) On cross-border exports

Specialised services

0%

5%

10%

15%

20%

25%

30%

500,000 1 million 5 million 10 million 50 million 200 million

Firm Size

(b) On foreign affiliate sales

Standardised services

Estimated additional tariff equivalent for SMEs compared to large firms of 400 million EUR or more

Additional trade cost of regulatory restrictions for SMEs

Services and Trade Growth

OECD Trade and Agriculture Directorate 24

Estimated impact of a 0.05 reduction in the STRIEstimated growth in trade from Services liberalisation

On exports

0%1%2%3%4%5%6%7%8%9%

10%

Air Legal Insurance Maritime Computer Banking0%1%2%3%4%5%6%7%8%9%

10%

Air Accounting Insurance Legal Banking

Imports Exports

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CONCLUSIONS

25

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