Economic growth across OECD countries has been slowing, mainly due to weak productivity growth, lower business investment, and declining skills outcomes. In a new publication, Foundations for Growth and Competitiveness 2026, the OECD finds that “improving the business environment and boosting skills and employment are key to reviving economic growth prospects and seizing opportunities from new technologies.”
While employment has been relatively strong, ageing populations and skills shortages are expected to put pressure on future economic growth. At the same time, new technologies, especially artificial intelligence, offer major opportunities for economic development and increased productivity, but only if countries have the right skills systems and policies in place to take advantage of them.
A central message in the report is that skills and education systems are critical to economic performance. And yet, many countries are experiencing declining student outcomes and gaps in adult skills, which are directly affecting productivity. The report highlights the importance of strong VET systems, strong alignment between training and labour market needs, and a much greater emphasis on lifelong learning.
The report groups policy priorities into three broad areas. Firstly there are the “enabling factors” including education, skills and human capital, governance and institutions, and both physical and digital infrastructure. Secondly the report looks at “incentives for businesses and individuals”, and examines concerns about “declines in business dynamism and job mobility and persistent barriers to (business) scale-up in many OECD countries”, and “megatrends like demographic change, shifting globalisation patterns and the digital and green transitions will demand a more adaptable and mobile economy to strengthen resilience in the face of future shocks and uncertainty.”
The third area is the importance of ‘targeted policies’, and specifically the need for policies which support innovation, clean energy, environmental and natural capital.
The key insight from the report is that these areas must work together; improving skills alone is not enough if businesses lack incentives to use skills productively and if policies and programs are not appropriately targeted.
The report emphasises the importance of better matching people to jobs and increasing participation, especially among underrepresented groups. Policies such as active labour market programs, affordable childcare, and flexible work arrangements can improve workforce participation and productivity. At the same time, reducing barriers to job mobility and improving job matching are essential to ensure skills are used effectively.
Finally, the report highlights that structural reform is difficult but essential. Governments need to prioritise reforms that deliver both short-term and long-term benefits, and sequence them carefully. Importantly, many reforms, such as improving training systems, supporting innovation, and investing in infrastructure, require upfront investment but deliver strong long-term gains in productivity and living standards.
In the ‘country note’ for Australia that is included in the report, the OECD states that:
“Australia’s economic performance has been mixed compared to OECD peers. The labour market has proved resilient to a surge in immigration-driven population growth, with strong employment growth keeping unemployment rates low. On the other hand, the level of labour productivity has fallen in recent years, deepening somewhat the gap in output per hour worked vis-à-vis the upper half of OECD countries.
A decline in the relative importance of fossil-fuel extraction, an ageing population and the net zero transition require an adaptable economy and a dynamic business sector, a challenge aggravated by Australia’s remoteness. Reducing regulatory barriers to competition and improving access to fast broadband connection would facilitate the entry and growth of innovative start-ups.”
It goes on to identify that Australia is below the OECD average, and well below the ‘Top 5 OECD’ countries, on:
- Fixed broadband subscriptions – greater than or equal to 100Mbps
- Share of renewables as a percentage of total primary energy supply
- Indirect taxes (on immovable property and taxes on goods and services), and
- The percentage of fibre in total broadband.
