Presentation of the November 2015 OECD economic outlook

1. 9 November 2015
Catherine L. Mann
OECD Chief Economist
OECD ECONOMIC OUTLOOK
Moving forward in difficult times
http://www.oecd.org/economy/economicoutlook.htm

2. Key issues
2
Global trade weakness
• Harbinger of further slowing of global GDP growth?
• China’s role at centre via commodity prices and global value chains
• Advanced economies resilient so far
Investment disconnect
• Real investment continues to disappoint
• Financial exposures in emerging markets could create stress
Policy reconfiguration to support demand
• Resume momentum for structural reforms, especially financial
sector and network services in Europe
• Take advantage of low interest rates to increase public
infrastructure investment, including to tackle climate change

3. Global GDP growth: modest projected upturn
(given smooth slowdown in China and more
robust investment in advanced economies)
3
Global GDP
1. Moving nominal GDP weights using purchasing power parities. 2. Fiscal years starting in April.
Source: OECD November 2015 Economic Outlook database.
Real GDP
Annual percentage changes
2014 2015 2016 2017
World1
3.3 2.9 3.3 3.6
United States 2.4 2.4 2.5 2.4
Euro area 0.9 1.5 1.8 1.9
Japan -0.1 0.6 1.0 0.5
China 7.3 6.8 6.5 6.2
India
2
7.3 7.2 7.3 7.4
Brazil 0.2 -3.1 -1.2 1.8

4. Dramatic slowdown in global trade growth
Such low rates historically occur with recessions
4
Import volumes
Source: OECD November 2015 Economic Outlook database.
Global trade volumes and GDP

5. Weaker import growth in China is a key
element of the broader trade slowdown
5
China: Real GDP and import volumes
Note: 2015 is change in the first three quarters vs 2014. Import
volumes are deflated based on OECD estimates. Nominal imports
during the first three quarters of 2015 were down 8 per cent.
Sources: OECD November 2015 Economic Outlook database.
Commodity price changes and China’s
share of global consumption
Note: Commodities shown are aluminium, coal, copper, iron ore,
lead, natural gas, nickel, oil, uranium and zinc.
Sources: IMF; BP Statistical Review of World Energy;
World Bureau of Metal Statistics.
This has exerted downward
pressure on commodity
prices
Chinese import growth has
slowed sharply

6. Rebalancing is happening in China,
but its pace is uncertain
6
Manufacturing and services growth
Services have been
growing faster than
manufacturing,
associated with
more consumption
But forecasters are
unsure about the
true underlying
pace of GDP growth
GDP forecasts for China and number of forecasters
Sources: Chinese National Bureau of Statistics; Bloomberg.

7. Weaker Chinese import growth helps
explain slowdowns among other EMEs
7
Note: For Korea, 2015 Q3 compared to 2014 Q3. Intensive trade with China is where merchandise exports to China were above
2% of GDP in 2014.
Sources: OECD National Accounts database; IMF; UNCTAD.
Sharpest
slowdowns in
countries with close
trade links to China
and/or dependent
on commodities
Change in GDP growth
Y-o-y growth in 2015 Q2 compared to y-o-y growth in 2014 Q2

8. As a group, advanced economies have
so far been resilient to EME weakness
8
Revisions to OECD Economic Outlook projections between June and November 2015
Sources: OECD June and November 2015 Economic Outlook databases.
GDP projections for
OECD economies
changed little
compared to BRIICS
Although OECD
export growth has
been revised down
sharply

9. Real investment exhibits sluggishness and
mixed projected improvement
9
Real fixed investment
1. OECD commodity exporters includes Australia, Canada, Chile, Mexico and Norway.
Source: OECD November 2015 Economic Outlook database.
Projected improvement assumes favourable structural
and demand policy settings

10. Financial exposures have increased; market
volatility could exacerbate vulnerabilities
10
EMEs sovereign bond spreads and
US equity price volatility
Source: Thomson Reuters.Note: Credit from banks and non-banks adjusted for breaks.
For South Africa 2008 instead of 2007.
Source: BIS.
Increase in debt levels in EMEs
End-period, per cent of GDP

11. Tighter labour markets and new policies should
yield healthier wage growth, but haven’t yet
11
Unemployment rate
Source: OECD November 2015 Economic Outlook database.
Compensation per employee

12. Structural policy ambition is key for the
outlook, but progress has stalled
12
-0.6
-0.4
-0.2
0.0
0.2
Product market
regulation
State control Barriers to
entrepreneurship
Barriers to trade and
investment
1998-2003 2003-2008 2008-2013
Changes in the strictness of regulatory barriers to competition
Average OECD indicator of product market regulation, overall index and three main sub-components
Source: OECD calculations.

13. Monetary policy support is required to
reach inflation targets
13
Core inflation
Note: Consumer prices excluding food and energy. The private consumption deflator is
used for the United States. For Japan, excludes the estimated impact of the consumption
tax increases in April 2014 and April 2017.
Source: OECD November 2015 Economic Outlook database.
Core inflation is not
projected to reach
central bank target
levels within 2 years
in any major
advanced economy
Accompanying structural reforms needed so as to
improve credit channel (euro area) and to
promote resource reallocation (Japan)

14. Collective action on public investment could
support growth without worsening debt ratios
14
1st year effects of a ½ per cent of GDP public investment stimulus by all OECD economies
Change from baseline
Note: Simulation using the NiGEM model, based on a two-year increase in the level of government investment equivalent to
½ per cent of GDP per annum in all OECD countries. The euro area figures are a weighted average of Germany, France and Italy.
Source: OECD calculations.
Collective action, quality projects, and structural
policy efforts are required to realise these gains

15. 15
Source: IPCC.
Tackling climate change is a long-term
challenge but must be more ambitious now

16. 16
Collective action is needed, but advanced
economies have lost momentum
Global new investment in renewable energy
Note: New investment volume adjusts for re-invested equity. Total values include estimates for undisclosed deals.
Developed volumes are based on OECD countries excluding Mexico, Chile and Turkey.
Sources: Bloomberg New Energy Finance; UNEP; Frankfurt School for Climate & Sustainable Energy Finance.

17. Well designed climate change policies can
improve the short-term outlook
17
Cost-benefit analysis should not deter action
• Some costs now, but smaller than costs of inaction
With clear and credible policies
• Some “costs” can stimulate activity, such as through
investment, research, confidence effects
Even a weak growth outlook
• Is not an excuse to delay policy action on climate change
• Collective action on investment, including on climate, would
support growth

18. Summary
18
Despite recent weakness, global trade and GDP are
expected to recover in 2016-17
The projections assume effective policies and collective
action reflected in revived investment and wage growth
Structural reform efforts need to be revived to support
monetary and fiscal efforts
Infrastructure spending, including for climate change
mitigation, could help in the short as well as the long term