What is the economic outlook for        OECD countries?             Paris, 22 May 2012               10h Paris time       ...
The outlook                                          Real GDP growth, in per cent                                         ...
Growth outlook different across regions                           Annualised quarterly real GDP growth, in per cent       ...
Moderate pickup in world trade                      CPB indicator of world merchandise trade, 2001 = 100              180 ...
World growth sustained by emerging                                      economies               Contribution to annualised...
Unemployment rates are diverging                                Unemployment rate, percentage of labour force             ...
Business confidence weak in euro area                      Purchasing Managers Index (PMI) for manufacturing and services ...
Consumption has stagnated in euro area                             Private consumption volumes, index 100 at cycle troughs...
Lending to consumers is growing                                    robustly in the United States                          ...
Deleveraging has barely begun in the                                             euro area                           House...
Underlying inflation to remain moderate                                   Core inflation, 4-quarter percentage change     ...
Monetary policy rates accommodative                                                Policy interest rates, in per cent     ...
Central bank balance sheets supportive                                                          Central bank liabilities, ...
Fiscal consolidation combines spending                                  reductions and tax increases                      ...
Government debt sustainability remains                                             a long-term challenge                  ...
Rebalancing underway in euro area                        Cumulative change in domestic demand between 2009 and 2013 (%)   ...
Unit labour costs have begun to adjust                                                    Unit labour cost, 1999 = 100    ...
Euro area policy compact                   Goals                   • Avoid downside scenario                   • Create co...
Euro area policy compact –                                     national policies                   Pro-growth structural r...
Large potential gains from a broad                                        package of reforms                    Overall GD...
Euro area policy compact – EU policies                   Firewall                   • Has been strengthened               ...
What is the economic outlook for        OECD countries?             Paris, 22 May 2012               10h Paris time       ...
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Economic Outlook - May 2012

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The global economy is recovering, but confidence is extremely uneven across different regions, according to the OECD’s latest Economic Outlook. European governments must take greater action to ensure that the crisis in the euro area does not derail the recovery.

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Economic Outlook - May 2012

  1. 1. What is the economic outlook for OECD countries? Paris, 22 May 2012 10h Paris time Angel Gurría Secretary-General & Pier Carlo PadoanDeputy Secretary-General and Chief Economist 1
  2. 2. The outlook Real GDP growth, in per cent 2010 2011 2012 2013 United States 3.0 1.7 2.4 2.6 Euro area 1.9 1.5 -0.1 0.9 Japan 4.5 -0.7 2.0 1.5The outlook Total OECD 3.2 1.8 1.6 2.2 Brazil 7.6 2.7 3.2 4.2 China 10.4 9.2 8.2 9.3 India 10.6 7.3 7.1 7.7 Indonesia 6.2 6.5 5.8 6.0 Russian Federation 4.3 4.3 4.5 4.1 South Africa 2.9 3.1 3.3 4.2 Source: OECD Economic Outlook 91 database. 2
  3. 3. Growth outlook different across regions Annualised quarterly real GDP growth, in per cent 10 10 5 5 0 0The outlook -5 -5 -10 -10 United States Euro area -15 -15 Japan -20 -20 2008 2009 2010 2011 2012 2013 Source: OECD Economic Outlook 91 database. 3
  4. 4. Moderate pickup in world trade CPB indicator of world merchandise trade, 2001 = 100 180 180 170 170 160 160 150 150World trade 140 140 130 130 120 120 110 110 100 100 90 90 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: CPB. 4
  5. 5. World growth sustained by emerging economies Contribution to annualised quarterly world real GDP growth, percentage points 8 8 6 6 4 4World growth 2 2 0 0 -2 -2 Non-OECD -4 -4 OECD -6 -6 -8 -8 2007 2008 2009 2010 2011 2012 2013 Note: Calculated using moving nominal GDP weights, based on national GDP at purchasing power parities. Source: OECD Economic Outlook 91 database. 5
  6. 6. Unemployment rates are diverging Unemployment rate, percentage of labour force 12 12 United States 11 11 Euro area 10 10 Japan 9 9Unemployment 8 8 7 7 6 6 5 5 4 4 3 3 2 2 2006 2007 2008 2009 2010 2011 2012 2013 Source: OECD Economic Outlook 91 database. 6
  7. 7. Business confidence weak in euro area Purchasing Managers Index (PMI) for manufacturing and services United States Euro area 65 65 65 65 60 60 60 60Business confidence 55 55 55 55 50 50 50 50 45 45 45 45 40 40 40 40 35 35 35 35 Manufacturing 30 Manufacturing 30 30 30 Non manufacturing Services 25 25 25 25 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 Note: Values greater than 50 signify an improvement in economic activity. Source: Markit Economics Limited. 7
  8. 8. Consumption has stagnated in euro area Private consumption volumes, index 100 at cycle troughs United States Euro area 120 120 120 120 1980:Q2 trough 1982:Q3 trough 1991:Q1 trough 1993:Q1 trough 2009:Q2 trough 2009:Q1 troughPrivate consumption 115 115 115 115 110 110 110 110 105 105 105 105 100 100 100 100 95 95 95 95 -4 -2 0 2 4 6 8 10 12 14 16 18 -4 -2 0 2 4 6 8 10 12 14 16 18 Note: Private consumption volumes are indexed to 100 in the quarter in which they reached the lowest level during the last three recessions. Zero on the horizontal axis corresponds to the quarter of these troughs. Source: OECD Economic Outlook 91 database. 8
  9. 9. Lending to consumers is growing robustly in the United States Annualised monthly percentage change Total US consumer loans Euro area bank loans to private sector 18 18 18 18Lending indicators 12 12 12 12 6 6 6 6 0 0 0 0 -6 -6 -6 -6 -12 -12 -12 -12 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 Note: Annualised monthly rate of change of seasonally adjusted stocks, in per cent. Euro area data are adjusted for the impact of securitisation. Last observation: March 2012 Source: Datastream and ECB. 9
  10. 10. Deleveraging has barely begun in the euro area Household gross debt, percentage of net disposable income 150 150 140 140Household deleveraging 130 130 United States 120 120 Euro area 3 Japan 110 110 100 100 90 90 80 80 70 70 1995 1997 1999 2001 2003 2005 2007 2009 2011 Note: Data for USA and Japan are not consolidated. For 2011 Q3 data are growth rates (2010 end of year to 2011 Q3) of balance sheets published by US Federal Reserve, Bank of Japan, and ECB. Euro area 3 is Germany, France and Italy. Source: OECD Annual National Accounts. 10
  11. 11. Underlying inflation to remain moderate Core inflation, 4-quarter percentage change 3 3 2.5 2.5 2 2 1.5 1.5 1 1Inflation 0.5 0.5 0 0 -0.5 -0.5 -1 United States -1 Euro area -1.5 -1.5 Japan -2 -2 2007 2008 2009 2010 2011 2012 2013 Note: United States - deflator of personal consumption expenditures (PCE) excluding food and energy; Euro area - harmonised index of consumer prices (HICP) excluding food, energy, tobacco and alcohol; Japan - consumer price index (CPI) excluding food and energy. Source: OECD Economic Outlook 91 database. 11
  12. 12. Monetary policy rates accommodative Policy interest rates, in per cent 4.5 4.5 United States 4 4 Euro areaMonetary policy rates 3.5 3.5 Japan 3 3 2.5 2.5 2 2 1.5 1.5 1 1 0.5 0.5 0 0 2008 2009 2010 2012 Source: Datastream. 12
  13. 13. Central bank balance sheets supportive Central bank liabilities, local currency 3500 3500 United States (bn dollars)Central bank balance sheets Euro area (bn euros) 3000 3000 Japan (100 bn yens) 2500 2500 2000 2000 1500 1500 1000 1000 500 500 2007 2008 2009 2010 2011 2012 Source: Federal Reserve; Bank of Japan; and European Central Bank. 13
  14. 14. Fiscal consolidation combines spending reductions and tax increases Change in the underlying primary balance 2011-13, in per cent of potential GDP 8 8 Revenue side 7 7 Spending sideFiscal consolidation 6 6 Total consolidation 5 5 4 4 3 3 2 2 1 1 0 0 -1 -1 ESP ISL ISR NZL NOR ITA GBR CAN KOR LUX CZE AUS SVK AUT DNK GRC HUN SWE EST JPN NLD USA BEL PRT POL DEU SVN IRL FRA FIN CHE Note: Total consolidation is the projected difference in the underlying primary balance; revenue side is the projected increase in the underlying receipts excluding interest earned on financial assets; and spending side is the projected decline in the underlying primary spending excluding interest payments on debt. Source: OECD Economic Outlook 91 database; and OECD calculations. 14
  15. 15. Government debt sustainability remains a long-term challenge Average increase in the underlying primary balance from 2011 to 2030, in percentage points of GDPGovernment debt sustainability 16 16 Debt stabilisation 14 14 Debt ratio to 60% 12 12 10 10 8 8 6 6 4 4 2 2 0 0 -2 -2 ESP ISL ISR OECD NZL LUX KOR GBR ITA AUS CAN CZE HUN SVK AUT DNK JPN GRC EST SWE USA FIN NLD BEL PRT POL EA15 DEU SVN IRL FRA CHE Note: See OECD Economic Outlook 91 for methodology. The bars show the average improvement in the underlying primary balance between 2011 and 2030 necessary to either stabilise government debt ratios or bring them down to 60% of GDP. In Japan’s case, the average consolidation shown would be sufficient to stabilise the debt ratio but only after 2030. Source: OECD Economic Outlook 91 long-term database. 15
  16. 16. Rebalancing underway in euro area Cumulative change in domestic demand between 2009 and 2013 (%) Changes in domestic demand and trade balances, 2009-13 15 LUX FIN 10 DEU AUTEuro area rebalancing 5 BEL SVK FRA NLD 0 ITA -5 SVN -10 ESP IRL PRT -15 -20 GRC -25 -4 -2 0 2 4 6 8 10 12 Change in merchandise trade balance between 2009 and 2013 (% of GDP) Source: OECD Economic Outlook 91 database. 16
  17. 17. Unit labour costs have begun to adjust Unit labour cost, 1999 = 100 160 160 2009 2013 150 150Unit labour costs 140 140 130 130 120 120 110 110 100 100 GRC IRL ESP ITA PRT NLD FIN BEL FRA AUT DEU Source: OECD Economic Outlook 91 database. 17
  18. 18. Euro area policy compact Goals • Avoid downside scenario • Create conditions for sustained growth • Strengthen monetary unionEuro area policy This requires • National policies • European policies 18
  19. 19. Euro area policy compact – national policies Pro-growth structural reforms • Boost growth through productivity and employment • Strengthen competitiveness • Protect weak segments of population • Contribute to current account rebalancingEuro area policy • Wage adjustment in deficit and surplus countries Growth friendly fiscal consolidation • Medium term plans • Composition of spending cuts and revenues Financial system repair • Transparency in balance sheet assessment • Recapitalise viable banks Reforms have already started in many countries. Benefits could materialise earlier than expected. 19
  20. 20. Large potential gains from a broad package of reforms Overall GDP per capita gains over 10-year horizon, in per cent 20 20 18 18 16 16Gains from reform 14 14 12 12 10 10 8 8 6 6 4 4 2 2 0 0 IRL LUX NLD DEU FIN PRT ITA ESP FRA AUT GRC BEL Note: Estimated cumulative GDP impact from reforms specified in Bouis and Duval (2011). The coverage of reforms varies across countries, partly because of data coverage issues. This figure therefore does not show a ranking across countries but possible effects from structural reforms. Source: R. Bouis and R. Duval (2011), OECD Economics Department Working Papers, No. 835. 20
  21. 21. Euro area policy compact – EU policies Firewall • Has been strengthened • Could be enhanced Fiscal compact • Implementation, transparency, communicationEuro area policy Growth • Single Market can deliver (much) more • Innovation can be boosted (EU patent) • EIB lending, infrastructure investment • Jointly guaranteed bonds • Redirect structural funds European Central Bank • Balance sheet could be used more broadly • Interest rate can be lowered 21
  22. 22. What is the economic outlook for OECD countries? Paris, 22 May 2012 10h Paris time Angel Gurría Secretary-General & Pier Carlo PadoanDeputy Secretary-General and Chief Economist 22
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