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OECD Interim Economic outlook - March 28 2013
 

OECD Interim Economic outlook - March 28 2013

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Global economic activity is picking up, but the continuing crisis in the euro area is delaying a meaningful recovery and job creation, the OECD said in its latest Interim Economic Assessment.

Global economic activity is picking up, but the continuing crisis in the euro area is delaying a meaningful recovery and job creation, the OECD said in its latest Interim Economic Assessment.

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    OECD Interim Economic outlook - March 28 2013 OECD Interim Economic outlook - March 28 2013 Presentation Transcript

    • What is the near-term global economic outlook? An interim assessment Paris, 28th March 2013 11h00 Paris time Pier Carlo PadoanOECD Deputy Secretary-General and Chief Economist 1
    • Overview • The global growth outlook is improving after a weak end to 2012. • The starting point and pace of improvement are worse for the euro area. • Financial market advances are outstripping real indicators.Overview • Confidence is still not strong, especially in the euro area. o Linked to high unemployment in many economies • Policy action is still needed to support demand. 2
    • OECD interim forecasts Annualised quarter-on-quarter real GDP growth, per cent 2012 Q3 2012 Q4 2013 Q1 2013 Q2 United States 3.1 0.1 3.5 2.0 Japan -3.7 0.2 3.2 2.2Interim Assessment Germany 0.9 -2.3 2.3 2.6 France 0.7 -1.2 -0.6 0.5 Italy -0.8 -3.7 -1.6 -1.0 United Kingdom 3.8 -1.2 0.5 1.4 Canada 0.7 0.6 1.1 1.9 G7 1.4 -0.5 2.4 1.8 Euro area 31 0.4 -2.3 0.4 1.0 1. Weighted average of Germany, France and Italy. Source: OECD Quarterly National Accounts; and OECD Indicator Model forecasts. 3
    • The near-term outlook has improved G7 real GDP Annualised quarter-on-quarter change, per cent 2.5 2.0Growth projections 1.5 1.0 0.5 0.0 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 -0.5 -1.0 Source: OECD Main Economic Indicators and OECD Indicator Model forecasts. 4
    • Emerging economies continue to drive global growth Contribution to annual world1 real GDP growthContributions to global growth Percentage points 6 6 Emerging 5 economies 2 5 4 OECD 4 3 3 2 2 1 1 0 0 -1 -1 -2 -2 -3 -3 2007 2008 2009 2010 2011 2012 2013 Note: Calculated using moving nominal GDP weights, based on national GDP at purchasing power parity. 2013 reflects OECD projections from Economic Outlook 92. 1. World GDP is proxied by the sum of OECD and the six large non-OECD emerging economies. 2. Emerging economies are here Brazil, China, India, Indonesia, Russia and South Africa. Source: OECD Main Economic Indicators and Economic Outlook 92. 5
    • Risks Downside tail risks to growth are less pronounced than 6 months ago thanks to policy action in the major economies. Remaining negative risks include: • The euro area recession and financial system fragility. • Fiscal deadlock in the United States, although the short-term risk of disruptive consolidation has receded.Risks • A widening disconnect between asset prices and real activity signalling excessive risk taking. 6
    • Financial markets have advanced strongly Equity markets Corporate bond spreads Index, August 2011 = 100 Per cent 145 United States 14 14 Euro area BBB 135 Euro area 12 Euro area high yield 12 Japan United States high yield 125 10 10 United States BBBFinancial markets 8 8 115 6 6 105 4 4 95 2 2 85 0 0 03-Nov-11 03-Jul-12 03-Nov-12 03-Jul-11 03-Sep-11 03-Sep-12 03-Jan-11 03-Jan-12 03-Jan-13 03-Mar-11 03-May-11 03-Mar-12 03-May-12 03-Mar-13 01-Jul-12 01-Nov-11 01-Jan-12 01-Mar-12 01-Nov-12 01-Jan-13 01-Mar-13 01-Sep-11 01-Sep-12 01-May-12 Note: S&P 500 Composite for the United States, Nikkei 225 for Japan, Note: High-yield bonds (Merrill Lynch indices) less government FTSE Eurotop 100 for euro area. Last observation: 21-03-2013. bond yields (10-year benchmark bonds); corporate BBB-rated Source: Datastream. bond yields (Merrill Lynch - average for 5-7 & 7-10 years) less average government bond yields of same maturities. Last observation: 22-03-2013. Source: Datastream; OECD calculations. 7
    • Confidence indicators are mixed Business confidence Consumer confidence PMI indicators Normalised indices 70 Standard deviations 3 65 United States 60 2 Euro area 55Business confidence Japan 1 50 45 0 40 United States -1 35 Euro area 30 -2 Japan 25 -3 2008m1 2008m5 2008m9 2009m1 2009m5 2009m9 2010m1 2010m5 2010m9 2011m1 2011m5 2011m9 2012m1 2012m5 2012m9 2013m1 2007m1 2007m5 2007m9 2008m1 2008m5 2008m9 2009m1 2009m5 2009m9 2010m1 2010m5 2010m9 2011m1 2011m5 2011m9 2012m1 2012m5 Note: Index, values above 50 indicating expansion. Note: Normalised at period average and presented in units of standard deviation. Values above zero signify levels of consumer confidence above the Source: Markit Economics Limited. period average. Source: OECD Main Economic Indicators. 8
    • Employment has yet to rebound strongly, especially in the euro area Employment rate Unemployment rate Per cent of working age population Per centLabour market conditions 73 12 71 10 69 8 67 6 65 4 63 United States United States 2 Euro area Euro area 61 Japan 0 Japan 59 2008q4 2010q1 2008q1 2008q2 2008q3 2009q1 2009q2 2009q3 2009q4 2010q2 2010q3 2010q4 2011q1 2011q2 2011q3 2011q4 2012q1 2012q2 2012q3 2012q4 2011q1 2008q1 2008q2 2008q3 2008q4 2009q1 2009q2 2009q3 2009q4 2010q1 2010q2 2010q3 2010q4 2011q2 2011q3 2011q4 2012q1 2012q2 2012q3 2012q4 Source: OECD Main Economic Indicators. Source: OECD Main Economic Indicators. 9
    • Inflation is low Consumer prices 12-month percentage change 3 United States Euro area 3 2 2 1 1 0 0 -1 -1 Headline¹ Core² Headline¹ Core²Inflation -2 -2 3 3 Japan Note: 1. Headline is Headline CPI for the 2 2 United States and Japan, and 1 Headline¹ Core² 1 Headline HICP for the euro area. 2. Core is CPI excluding food and 0 0 energy for the United States and Japan, HICP excluding energy, food, -1 -1 alcohol and tobacco for the euro area. -2 -2 Source: OECD Main Economic Indicators. 10
    • Policy action is needed to ensure a self-sustaining recovery • Demand in many countries still faces headwinds. • Given limited fiscal space, monetary policy remains a keyPolicy recommendations instrument for supporting demand. • Low inflation gives room for monetary policy action. • Fiscal consolidation remains necessary in most OECD countries. • Stronger, more sustainable and fairer growth can be achieved through structural reform. 11
    • The United States • Consumption and housing have picked up, but policy rates shouldRecommendations: United States stay low until labour market conditions improve sufficiently and as long as inflation expectations remain well anchored. • The point where the costs of further quantitative easing (QE) outweigh the benefits may be within sight, but skilful judgement will be required to gauge the speed at which asset purchases can be phased out. • Fiscal policy should avoid disruptive outcomes in the near term, while agreement is needed on a plan to reduce the deficit over the medium term and address long-term cost pressures on health care and pensions. 12
    • Japan • The prospect of easier monetary policy has resulted in welcome yen depreciation and surging equity prices. Implementation will require more aggressive QE, with more asset purchases going toRecommendations: Japan long-term government and corporate bonds. An expansionary stance should be maintained until inflation is durably around the 2% target. • A credible plan to attain the government’s long-term fiscal targets is needed. Controlling expenditures is key, particularly for social security. • Monetary, fiscal and structural policies must be applied in a mutually reinforcing way to tackle the high level of public debt while supporting growth. 13
    • The euro area • Monetary policy should be eased, given weak demand and below- target inflation. Policy rates are already low, but can be reducedRecommendations: the euro area further, and more specific forward guidance could be given. • The euro area remains vulnerable to feedback loops between banking system fragility and public debt burdens. Rapid progress must be made on the construction of a fully fledged banking union. • The Cypriot case, while exceptional, shows the importance of addressing banking crises directly while creating the right institutions at the euro area level to maintain banking system stability. • Existing commitments to structural budgetary consolidation should be met, while allowing automatic stabilisers to operate fully. This implies that nominal deficit targets are likely to be missed. 14
    • The cost of credit still varies widely in the euro area Bank loan rates for non-financial corporations Per cent 7.5Euro area credit costs 6.5 5.5 4.5 3.5 France Germany 2.5 Greece Ireland Italy Portugal 1.5 Spain Note: Cost of credit is defined as the interest rate on new loans to non-financial corporations (all maturities) with the exception of Greece, where it refers to new loans with a maturity of up to one year. Source: European Central Bank. 15
    • The level and rise of public debt in the euro area as a whole are not out of line with other major economiesEuro area government debt to GDP General government debt to GDP Per cent 240 180 220 160 200 140 United States (right scale) 180 160 120 Euro area (right scale) 140 100 120 Japan (left scale) 100 80 80 United Kingdom (right 60 scale) 60 40 40 20 20 Note: For the euro area, Japan, and United Kingdom, the values from 2012 Q1 onwards are calculated using OECD estimates of gross debt and the actual value of GDP according to national accounts statistics. Source: OECD National Accounts database and OECD calculations. 16
    • Euro area rebalancing • The underlying rebalancing of the economy is underway, although the process still has some way to go. • Considerable progress has been made on reducing structuralEuro area rebalancing budget deficits, and in most countries the largest part of the fiscal adjustment required after the crisis has already been undertaken. • Structural reforms, notably in Greece, Ireland, Italy, Portugal and Spain, provide a solid base for a recovery in competitiveness and an increase in employment when demand turns around. • The short-term costs of these adjustments would be reduced by an improved supply of credit in debtor countries and structural reforms to rebalance activity and demand in surplus economies. 17
    • Competitiveness adjustments in the euro area are underway Unit labour cost Index, 1999 = 100 150Euro area unit labour costs Core countries 1 140 Programme countries 1 France 130 Italy 120 Spain 110 100 90 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Note: 1. Core countries are here defined as Germany, the Netherlands, Austria and Finland. Programme countries are Greece, Ireland and Portugal. 2. Economy-wide unit labour costs. 2012 incorporates estimates in Economic Outlook 92. Country groupings constructed as a chain-linked aggregates using nominal GDP weights. Source: OECD Quarterly National Accounts database and Economic Outlook 92 database. 18
    • Lower periphery imports have been the main adjustment factor so farEuro area current account adjustment Index, 2008=100 Core 1 Periphery 2 Index, 2008=100 120 Import volumes 120 Import volumes 115 115 110 110 Export volumes Export volumes 105 105 100 100 95 95 90 90 85 85 80 80 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 Current Account Balance Note: 8 Per cent of GDP 1. The core is here taken as comprising 6 Austria, Finland, Germany and the 4 Netherlands. 2 2. The periphery is here defined as 0 Greece, Italy, Ireland, Portugal and Spain. -2 3. Current account balance is the sum of -4 current account balances as a percentage -6 of the combined GDP across the -8 Core Periphery countries. -10 Source: OECD National Accounts 2008q2 2008q3 2008q1 2008q4 2009q1 2009q2 2009q3 2009q4 2010q1 2010q2 2010q3 2010q4 2011q1 2011q2 2011q3 2011q4 2012q1 2012q2 2012q3 2012q4 database, Economic Outlook 92 database and OECD calculations. 19
    • What is the near-term global economic outlook? An interim assessment Paris, 28th March 2013 11h00 Paris time Pier Carlo PadoanOECD Deputy Secretary-General and Chief Economist 20