Presentation of the OECD Global Interim Economic projections, February 2016

1. Paris, 18 February 2016
11h00
Catherine L. Mann
OECD Chief Economist
OECD INTERIM
ECONOMIC OUTLOOK
Stronger growth remains elusive:
Urgent policy response is needed
www.oecd.org/economy/economicoutlook.htm
ECOSCOPE blog: oecdecoscope.wordpress.com/

2. Key messages
2
Stronger global growth remains elusive
• Weak trade, investment, and commodity prices
• Disappointing incoming data on demand conditions
• Low inflation and poor wage growth
Financial instability risks are substantial
• Steep declines in global equity markets
• Volatile capital flows and high debt exposures in EMEs
Collective policy action is urgent
• Maintain accommodative monetary policy
• Focus supportive fiscal policies on investment-led spending
• Revive pace of productivity- and growth-enhancing structural reforms

3. Global growth forecasts: Revised Down
3
Global GDP growth in
2016 projected to be
no higher than 2015
Global growth revised
down by 0.3% pts in
both 2016 and in 2017
Growth barely
recovering in
advanced countries,
slowing in many EMEs
GDP forecasts
Forecast downgrades since November
Source: OECD Economic Outlook databases; and OECD calculations.

4. Interim Economic Outlook Forecasts
4
Real GDP growth (%)1
1. Year-on-year. GDP at market prices adjusted for working days.
2. Difference in percentage points based on rounded figures for both the current and November 2015
Economic Outlook forecasts.
3. Fiscal years starting in April.
2015
Column2 Column3
February 2016
Interim
Projections
difference from
November
Economic
Outlook2
February 2016
Interim
Projections2
difference from
November
Economic
Outlook2
2
World 3.0 3.0 -0.3 3.3 -0.3
United States 2.4 2.0 -0.5 2.2 -0.2
Euro area 1.5 1.4 -0.4 1.7 -0.2
Germany 1.4 1.3 -0.5 1.7 -0.3
France 1.1 1.2 -0.1 1.5 -0.1
Italy 0.6 1.0 -0.4 1.4 0.0
Japan 0.4 0.8 -0.2 0.6 0.1
Canada 1.2 1.4 -0.6 2.2 -0.1
United Kingdom 2.2 2.1 -0.3 2.0 -0.3
China 6.9 6.5 0.0 6.2 0.0
India
3
7.4 7.4 0.1 7.3 -0.1
Brazil -3.8 -4.0 -2.8 0.0 -1.8
Rest of the World 2.1 2.5 -0.3 3.1 -0.2
2016 2017

5. 5
Global demand cannot be sustained
solely by the US recovery
Consumption
growth has been
steady, but
investment and
exports have
weakened
Appreciation of
the US dollar
has contributed
to fall in exports
in late 2015
Source: OECD Economic Outlook Database
Contributions to quarterly US GDP growth

6. Rebalancing in China and financial volatility
are dragging on global markets
6
Composition of growth in China
Growth is slowing
and rebalancing
from manufacturing
to services, but with
mounting financial
vulnerabilities
External financial
management is
proving to be
challenging
Note: Manufacturing (secondary) includes construction.
Source: Chinese National Bureau of Statistics; People’s Bank of China; and Thomson Reuters.
Currency depreciation and declining reserves

7. Commodity prices have been falling
7
The sharp fall in oil and
commodity prices
reflects supply running
ahead of demand
Lower oil prices should
help consumers, but
have depressed
investment
Source: OECD Economic Outlook database; and Thomson Reuters.
Commodity prices
Baltic Dry Index

8. Significant slowdown in global trade growth
8Note: World trade is goods plus services trade volumes. World GDP growth is measured at purchasing power parities.
Source: OECD Economic Outlook database.
Global trade volumes and GDP

9. 9
Sluggish demand leads to low inflation
and weak wage growth
Note: Latest month available. Core inflation is for consumer prices excluding food and energy. The private consumption
deflator is used for the United States.
Source: OECD Economic Outlook databases.
Core inflation Compensation per employee

10. Financial markets are reassessing prospects,
triggering lower and more volatile equity prices
10
Share prices in major markets
Share prices have
fallen sharply since
December
Market volatility
worldwide has
increased
Volatility Index (VIX)
Source: Thomson Reuters.

11. Risks of financial instability are substantial,
particularly from emerging markets
11
Nominal effective exchange rates
Exchange rates
have depreciated
sharply and
capital flows have
been volatile
Borrowing costs
are rising
Source: OECD Exchange Rate database; and Thomson Reuters.
EMEs sovereign bond spreads
EMBI Composite, basis points

12. Some EMEs are vulnerable to exchange rate
shocks and high domestic debt
12
Credit to corporations has increased
Percent of GDP
External liabilities are significant
Percent of GDP, 2014 or latest available
Note: Credit to non-financial corporates. For South Africa, 2008 rather than 2007.
Source: OECD November 2015 Economic Outlook database; BIS; and OECD calculations.

13. 13
A stronger collective policy
response is needed

14. 14
Monetary policy working alone is not
sufficient to support global demand
Central bank balance sheets
The European
Central Bank and
Bank of Japan
have announced
new measures
US monetary
policy is expected
to tighten at a
slower pace
Note: Policy rate shows the top of the target range.
1. Future overnight market interest rates derived from overnight index swap rates.
Source: Thomson Reuters; Bloomberg; and OECD calculations.
US federal funds rate expectations

15. 15
Fiscal policy is contractionary in many
major economies, although not in China
While the pace of
consolidation has
eased, drag on
global demand
continues
Fiscal stimulus in
China is
supporting growth
Note: For China, change in the general government balance as a per cent of GDP from 2014-15.
Source: OECD Economic Outlook databases.
Change in the underlying primary balance
2014-16
Tighter
policy

16. 16
Interest rates are very low, providing an
opportunity to borrow and invest
Government bond
yields have fallen
and some are now
negative over
short horizons
Source: Thomson Reuters.
2-year government bond yields

17. Collective fiscal action promotes growth
and fiscal sustainability
17
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 should focus on public investment and
pro-growth structural policies

18. The pace of structural reforms
shows insufficient ambition
18
Note: Calculated for all countries for which recommendations are available. Emerging market economies include Brazil, Chile, China, Columbia,
India, Indonesia, Mexico, Russia, Turkey and South Africa; Mexico and Turkey only prior to 2011. Advanced includes the rest of the OECD.
Source: OECD Going for Growth 2016 (forthcoming).
Responsiveness to OECD Going for Growth recommendations
Share of recommendations implemented

19. Deleveraging proceeded faster and
further in the US than the euro area
In the EU, much more progress is needed
to boost investment and productivity
19Source: European Commission; Eurostat; and Fournier et al.
(2015).
Source: Eurostat; OECD Main Statistical Database; and OECD National
Accounts Database.
Deleveraging is needed for financial health
Household and non-financial corporate debt
Harmonising and reducing
regulation in the EU could raise FDI,
and boost trade intensity by 10-25%
Juncker investment plan disappoints

20. The GDP impact of uncertainties
in Europe could be great
20
Note: The investment decline scenario reduces the growth rate of business investment in all European Economic Area countries by 2½ percentage
points in both 2016 and 2017 due to higher policy uncertainty and expectations of weaker medium-term growth. The shock is equivalent to
around one fifth of the policy uncertainty shock of 2011. The second scenario adds a 50 basis point increase in equity and investment risk premia
in all EU countries, returning approximately one sixth of the financial conditions prevailing at the height of the euro area crisis.
Source: OECD calculations.
Change in GDP after two years
Per cent

21. Summary
21
Global growth flat-lined due to continued subdued global trade,
investment and wage growth in advanced economies
Emerging market economies’ growth models have been exposed by
the slowdown in trade and falling commodity prices
Despite the boost from low oil prices and interest rates, the most
likely scenario is weak global growth in 2016 and 2017
Substantial downside risks centre on financial market volatility and
emerging market debt
Collective fiscal action and more ambition on structural policies would
raise global growth and reduce financial risks