The global economy is expected to continue expanding at a moderate pace over the coming two years, but policymakers must ensure that instability in financial markets and underlying fragility in major economies are not allowed to derail growth, according to the OECD’s latest Economic Outlook.

1. The Global
Economic Outlook:
Stronger growth ahead,
but more risks
Paris, 19th November 2013
11h00 Paris time
Pier Carlo Padoan
Deputy Secretary-General
and Chief Economist

2. OECD Economic Outlook: key messages
1. Global growth should pick up if major risks do not materialise.
2. Downside risks prevail. Negative spillovers from emerging
economies could be stronger than before.
3. Emerging economies need to address vulnerabilities to improve
resilience and tackle the slowdown in potential growth.
4. The United States should avoid fiscal brinkmanship.
5. In Japan, all three “arrows” of the government’s strategy should be
implemented fully.
6. The euro area must repair the banking system and rebalance
demand to reduce unemployment.
2

3. Global growth should pick up if major
risks do not materialise…
Summary of growth projections
World
OECD
Non-OECD
United States
Euro area
Japan
China
World trade growth
2012
3.1
1.6
5.1
2.8
-0.6
1.9
7.7
3.0
2013
2.7
1.2
4.8
1.7
-0.4
1.8
7.7
3.0
2014
3.6
2.3
5.3
2.9
1.0
1.5
8.2
4.8
2015
3.9
2.7
5.4
3.4
1.6
1.0
7.5
5.9
Note: The upward (green) arrow means that the growth in the current year is higher than
in the previous year. Real GDP growth and world trade growth (the arithmetic average of
world merchandise import and export volumes) are seasonally and working-day adjusted
annualised rates.
Source: OECD Economic Outlook database 94.
3

4. Growth prospects remain strongest in
the emerging economies
Projected change in real GDP in 2014-15
Annual average, per cent
8
8
7
7
1
6
BRIICS
6
5
Euro area countries
5
4
Other OECD member countries
4
3
3
2
2
1
1
0
0
-1 CHN IND MEX KOR ZAF USA POL AUS SWE CAN SVK BRA IRL HUN DNK FIN FRA ITA ESP NLD
IDN CHL TUR
ISR
EST
NZL NOR
ISL
RUS CHE GBR LUX AUT DEU CZE
BEL
JPN
PRT GRC SVN
-1
1. BRIICS countries comprise Brazil, China, India, Indonesia, Russia and South Africa.
Source: OECD Economic Outlook database 94.
4

5. … but the outlook is somewhat less
positive than it appeared in May…
Growth forecast almost unchanged for the OECD…
… but significantly weaker for many emerging economies with the
exception of China.
Comparison of growth projections from May and November Economic Outlooks
OECD
3
3
BRIICS1
8
May 2013 Outlook
November 2013 Outlook
May 2013 Outlook
November 2013 Outlook
2
2
6
1
1
4
2011
2012
2013
2014
6
4
2011
2012
1. BRIICS countries comprise Brazil, China, India, Indonesia, Russia and South Africa.
Source: OECD Economic Outlook database 93 & 94.
8
2013
2014
5

6. … with forecast revisions varying
across countries
Change in 2014 real GDP growth projection between May and November Economic Outlooks
Percentage points
GBR
GRC
HUN
LUX
POL
PRT
FRA
CHE
NZL
ITA
JPN
ESP
MEX
USA
CAN
ISL
BEL
IRL
AUT
BRIICS1
Euro area countries
Other OECD member countries
ISR
DNK
KOR
NOR
DEU
IDN
TUR
CHL
RUS
BRA
IND
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1. BRIICS countries comprise Brazil, China, India, Indonesia, Russia and South Africa.
Source: OECD Economic Outlook database 93 & 94.
1.0
6

7. The current recovery is still weak by
past standards…
OECD-wide real GDP, relative to pre-recession peak
Per cent
20
15
1970s; Peak at 1974Q3
1990s; Peak at 1990Q4
1980s; Peak at 1981Q3
2000s; Peak at 2008Q1
20
15
10
10
5
5
0
0
-5
-5
Note: The point labelled “t” on the horizontal axis corresponds to the pre-recession peak quarter for each cycle.
Source: OECD National Accounts database.
7

8. … with a striking slowdown in world
trade growth…
World trade/GDP1
World trade volumes
Per cent
2007 = 100
30 120
30
25
Trend (1990-2007)
120
25
20
20 100
15
15
10
10
80
100
80
1. Trade and GDP both in volume terms, in 2005 prices.
Source: OECD National Accounts database, CPB World Trade Monitor.
8

9. … which also reflects particular
weakness in investment…
OECD-wide fixed investment
World FDI flows
Volume, 2007 = 100
Index of USD values, 2007 = 100
105
105
120
120
100
100
100
100
95
95
80
80
90
90
60
60
85
85
40
40
80
80
20
20
75
75
0
0
Note: Fixed investment values are the weighted average of OECD member countries, where the weights are GDP
measured at 2005 PPP USD.
Source: OECD Economic Outlook 94 database, OECD Foreign Direct Investment (FDI) Statistics.
9

10. … credit has lagged in the major
economies…
Bank loans to non-financial private sector
2007 = 100
110
110
105
105
100
100
95
95
90
90
85
Major OECD economies
80
85
Euro area
United States
Japan
80
Note: Major OECD economies is calculated as the weighted average of the indices (2007 = 100) of nominal bank credit
to the non-financial private sector for the United States, the euro area and Japan, where the weights are GDP in 2007
measured at USD PPP.
Source: Datastream and European Central Bank.
10

11. … and which has resulted in stubbornly
high unemployment, especially in Europe
OECD-wide unemployment
Unemployment rate
14
Per cent
Millions of persons
14
55
12
12
50
50
10
10
45
45
8
8
40
40
6
6
35
35
4
4
30
30
25
25
20
20
2
0
United States
Euro area
Japan
2
0
55
Source: OECD national accounts database, OECD Economic Outlook 94 database, and Eurostat.
11

12. Recent financial turbulence is one
reason for the less positive outlook
The fallout from the discussion
of tapering of asset purchases
by the Federal Reserve in May is
the main negative development
since the last Outlook
• limited impact to date on
major OECD economies
• significant effects on some
emerging economies
Emerging market bond index1
May 1, 2013 = 100
105
100
105
Bernanke statement
on tapering
100
95
95
90
90
85
80
1. JP Morgan EMBI+.
Source: OECD Economic Outlook 94 database, Datastream.
FOMC
delays
taper
85
80
12

13. Emerging economies with large
current account deficits were worst-hit
Maximum rise in long-term yields from May 2013
Maximum increase in long-terminterest
rates¹, in % pts
5.0
TUR
4.0
IDN
BRA
3.0
ZAF
MEX
IND
RUS
2.0
CHN
1.0
0.0
-8
-6
-4
-2
0
2
4
Current account balance last 4 quarters, in % of GDP
1. Based on daily information from April 30 to November 15, 2013.
Note: Latest 4-quarter period is Q3 2012 – Q2 2013.
Source: OECD Economic Outlook 94 database; Datastream; and IMF Balance of
Payments database.
13

14. Downside risks prevail. The recovery
path is likely to be turbulent
Significant risks remain from incomplete resolution of fiscal, financial
and structural weaknesses since the crisis.
Recent instability was a reminder of how risks can derail the central
scenario for growth and employment.
A tapering of US Federal Reserve asset purchases may bring a renewed
bout of instability.
Underlying fragilities in all the major economies could be exposed by the
realisation of one or more prominent risks.
14

15. Negative spillovers from emerging
economies could be stronger than before
A deeper slowdown in EMEs would have negative feedback effects on
advanced economies.
Some advanced economies have tight trade and financial links with
EMEs, and would be significantly affected.
First-year impact on growth of a 2% decline in domestic demand in non-OECD countries excluding China
0.0
-0.5
-0.5
-1.0
-1.0
Percentage points
0.0
15
Source: OECD Economic Outlook 94 database; and OECD calculations.

16. United States: exit from unconventional
monetary policy will be challenging
US monetary policy should remain accommodative, balancing
uncertainty about the evolution of demand and employment with the
costs of postponing exit.
As growth strengthens, bond purchases should be wound down. When
that process is complete, the Federal Reserve should start to raise policy
interest rates towards a more neutral stance.
16

17. ... as will dealing with the taper
elsewhere
In vulnerable EMEs, the US taper may aggravate policy dilemmas, with a
reversal of capital inflows weakening activity.
Where inflation is already high and the central bank’s credibility is in
question, interest rates may have to be higher to anchor inflation
expectations.
US taper will also put upward pressure on interest rates in advanced
countries, notably the euro area. This is another reason why
strengthening bank balance sheets is an urgent priority.
17

18. Addressing the risk of fiscal deadlock in
the United States
Polarised politics and the nominal debt ceiling create risks not only for
the US but the whole world.
The nominal debt ceiling should be abolished.
Mechanistic and arbitrary short-term consolidation measures should be
replaced by a coordinated medium-term plan.
18

19. If the US debt ceiling were to bind,
a new global recession could be triggered
Change relative to baseline in first year if debt ceiling were to bind for one year
-8
-6
Percentage points
GDP growth
-4
-2
Unemployment
0
0
1
2
3
United
States
United States
Euro area
Japan
Euro
area
China
Japan
OECD
China
World
Inflation
-2.0
-1.5
-1.0
-0.5
0.0
United States
Euro area
Japan
China
OECD
Note: Government consumption reduced by 5% of GDP in 2014. Term premium in long-term interest rates up by 200 b.p. in 2014 in
the USA. Equity prices drop by 25% in 2014 in all countries. Short-term interest rates and nominal exchange rates held fixed.
Source: OECD Economic Outlook 94 database, and OECD calculations.
19

20. Japan’s fiscal challenges remain
massive…
Consolidation requirements to reduce government debt to 60 per cent of GDP by 20301
Percentage points of GDP
12
12
10
10
8
8
6
6
4
4
2
2
0
0
-2
-2
1. The average measure of consolidation is the difference between the underlying primary balance in 2014 and the
average underlying primary balance between 2015 and 2030, except for those countries for which the debt target is only
achieved after 2030, in which case the average is calculated up until the year that the debt target is achieved.
Source: OECD calculations.
20

21. … and must be tackled decisively
The 2014 rise in
the consumption
tax is just the
first step to
putting public
debt on a
sustainable path.
• The second planned increase, to 10% in
2015, should go ahead on schedule.
• Any package to soften the growth impact of
the tax increases should be focussed on
one-time measures with high multipliers.
• A detailed and credible plan to achieve the
target of primary balance by 2020 is
needed.
• Structural reform to boost growth should
be implemented quickly.
21

22. Preventing another euro area crisis
The recent ECB rate cut is welcome, but further easing may be required if
deflation risks intensify.
The Asset Quality Review and stress tests must be implemented
rigorously – and followed up by bank recapitalisation where needed.
Further progress must be made on establishing a fully fledged banking
union with an adequate joint fiscal backstop. The date for an effective
single bank resolution regime should be brought forward.
22

23. Euro area countries hardest-hit by the crisis
have made progress on structural reform…
Responsiveness rates to Going for Growth recommendations, 2011-121
1.0
1.0
0.5
0.5
0.0
0.0
1. Responsiveness rates are calculated as the share of priority areas identified in Going for Growth
2011 in which 'significant' action was taken in 2011-12. The euro area and OECD rates are
calculated as an unweighted average.
Source: OECD Going for Growth 2013.
23

24. …which is assisting with internal
rebalancing…
Contributions to improvement in net exports since 2007-081
In per cent of 2007-08 euro area GDP1
1.5
1.5
Fall in imports
Rise in exports
Change in net exports
1.0
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
Greece
Ireland
Italy
Portugal
Spain
1. The values shown are the changes between Q4 2007 – Q3 2008 and Q3 2012 – Q2 2013.
Source: OECD Economic Outlook 94 database.

25. … although that adjustment
needs to be more symmetric
Current account balance/GDP
Per cent, 4-quarter moving average
10
10
5
5
0
0
-5
-5
-10
-10
-15
-15
-20
DEU
GRC
ITA
PRT
ESP
-20
Source: OECD national accounts database.
25

26. Summing up
The global economy looks set to move beyond its post-crisis
sluggishness, but there are still prominent downside risks.
There is no room for complacency. Policy makers should avoid
creating turbulence and stand ready to mitigate instability.
Successful growth strategies require a strong commitment to
structural reforms in advanced and emerging market economies
alike.
Policy priorities at the international level include trade, investment
and financial reform.
26

27. More information
www.oecd.org/economy/economicoutlook.htm
27