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.

1. What is the economic outlook for
OECD countries?
Paris, 22 May 2012
10h Paris time
Angel Gurría
Secretary-General
&
Pier Carlo Padoan
Deputy Secretary-General and Chief Economist
1

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 1.5
The 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. Growth outlook different across regions
Annualised quarterly real GDP growth, in per cent
10 10
5 5
0 0
The 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. Moderate pickup in world trade
CPB indicator of world merchandise trade, 2001 = 100
180 180
170 170
160 160
150 150
World 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. World growth sustained by emerging
economies
Contribution to annualised quarterly world real GDP growth, percentage points
8 8
6 6
4 4
World 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. Unemployment rates are diverging
Unemployment rate, percentage of labour force
12 12
United States
11 11
Euro area
10 10
Japan
9 9
Unemployment
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. 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 60
Business 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. 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 trough
Private 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. 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 18
Lending 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. Deleveraging has barely begun in the
euro area
Household gross debt, percentage of net disposable income
150 150
140 140
Household 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. Underlying inflation to remain moderate
Core inflation, 4-quarter percentage change
3 3
2.5 2.5
2 2
1.5 1.5
1 1
Inflation
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. Monetary policy rates accommodative
Policy interest rates, in per cent
4.5 4.5
United States
4 4
Euro area
Monetary 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. 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. 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 side
Fiscal 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. Government debt sustainability remains
a long-term challenge
Average increase in the underlying primary balance from
2011 to 2030, in percentage points of GDP
Government 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. 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
AUT
Euro 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. Unit labour costs have begun to adjust
Unit labour cost, 1999 = 100
160 160
2009 2013
150 150
Unit 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. Euro area policy compact
Goals
• Avoid downside scenario
• Create conditions for sustained growth
• Strengthen monetary union
Euro area policy
This requires
• National policies
• European policies
18

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 rebalancing
Euro 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. 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 16
Gains 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. Euro area policy compact – EU policies
Firewall
• Has been strengthened
• Could be enhanced
Fiscal compact
• Implementation, transparency, communication
Euro 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. What is the economic outlook for
OECD countries?
Paris, 22 May 2012
10h Paris time
Angel Gurría
Secretary-General
&
Pier Carlo Padoan
Deputy Secretary-General and Chief Economist
22