Commentary: Collapse in sentiment across the OECD as 95% of surveyed businesses report weak business climate

Mark Agnew is Senior Director of International Policy at the Canadian Chamber of Commerce.

One of the key international bodies the Canadian Chamber engages with is Business at OECD, which is the official business advisory group to OECD and its member country governments. It is a critical body to participate in given the OECD’s work cuts across nearly every area of business policy: tax, trade, financial services, environment, digital, competition, responsible business conduct, and many others.

In addition to being able to shape discussions at an early stage on issues that impact Canadian businesses, Business at OECD provides a forum for companies to gain insights from the OECD’s global network across market-oriented industrial economies. The flagship insight document published by Business at OECD annually is their economic policy survey.

This year’s survey came as a stark wake-up call to the deep economic pain being felt across the globe due to COVID-19. The headline number that stood out was the precipitous decline in perceptions of the current business climate. Whereas in 2019 only 16% of the Business at OECD global network felt a weak business climate, this number was 95% in 2020. Concerning too is the squeeze being felt on both the demand side (i.e. consumers and businesses asking for goods and services) and the supply side (i.e. businesses’ ability to produce and supply those goods and services).

The vast majority of survey respondents now rate the business climate in their countries as either weak or very weak (95% simple average; 99.9% GDP weighted average).

Unsurprisingly, hospitality, transportation, and industries requiring close personal proximity are being hit the hardest. Using a weighted average – which is a way of accounting for the impacts based on a country’s relative size – the oil and gas sector is also feeling the pain across the OECD.

That is the gloom. What did the economic survey tell us about finding our way out of this one?  One thing that quickly stands out is the emphasis on the interactions between business and the wheels of government. By a large margin, a lack of political will and leadership was identified as the biggest obstacle to reforms that will support economic growth. Ranked second was a lack of political continuity. Fourth was capacity of public administration to implement reforms. When asked about specific areas for reform that will support economic growth, public sector efficiency ranked third highest out of eighteen different options.

Other priorities identified include bread and butter economic policy. This includes areas such as infrastructure, human capital, innovation, trade, and tax. Business at OECD has been active in these areas and its global network is advocating for measures that would support businesses. For instance on trade the resiliency of supply chains is a top priority. On tax, the push has been to ensure responses measures help with liquidity for companies.

What is the takeaway from the survey? Economics fundamentals are just that, fundamental. There is a risk of over complicating the government response and things being stuck in the wheels of government decision-making. We need to act decisively and credibly to find our way out.

– Mark Agnew