OECD's Economic Projections launch 6 May 2014

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Global economy strengthening but significant risks remain, says OECD in latest Economic Outlook

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    Yours Faithfully Maris Gaasu
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OECD's Economic Projections launch 6 May 2014

  1. WHAT IS THE GLOBAL ECONOMIC OUTLOOK? Paris, 6 May 2014 Angel Gurría, Secretary-General and Rintaro Tamaki, Deputy Secretary-General and Acting Chief Economist
  2. Growth in advanced economies is rebounding… Real GDP growth Per cent 0 2 4 6 8 10 0 2 4 6 8 10 2010 2011 2012 2013 2014 2015 OECD BRIICS Source: OECD May 2014 Economic Outlook database.
  3. … driving a strengthening of global growth Real GDP growth Per cent Source: OECD May 2014 Economic Outlook database. 2011 2012 2013 2014 2015 World1 3.7 3.0 2.8 3.4 3.9 OECD1 2.0 1.5 1.3 2.2 2.8 BRIICS 1,2 7.3 5.7 5.4 5.3 5.7 United States 1.8 2.8 1.9 2.6 3.5 Euro area 1.6 -0.6 -0.4 1.2 1.7 Japan -0.5 1.4 1.5 1.2 1.2 China 9.3 7.7 7.7 7.4 7.3 2. Brazil, Russia, India, Indonesia, China and South Africa. 1. Moving nominal GDP weights, using purchasing power parities.
  4. Some of the stalled cylinders of growth are starting to fire again Fixed investment Volume index, 2007 = 100 Trade in goods and services Volume, year-on-year percentage change 2012 2013 2014 2015 70 80 90 100 110 120 70 80 90 100 110 120 United States Japan Euro area Pre-crisis level 2012 2013 2014 2015 -2 0 2 4 6 8 10 -2 0 2 4 6 8 10 World OECD Average growth of world trade (1990-2007) Source: OECD May 2014 Economic Outlook database.
  5. Financial conditions are facilitating faster growth OECD Financial Conditions Index (FCI)1 1. The FCI takes into account interest and exchange rates, credit condition surveys and household wealth. A unit increase raises GDP by ½ to 1% after 4-6 quarters. Bank lending rates for European companies1 3-month moving average, per cent 1. Rate on new loans to non-financial corporations (all maturities), except for Greece (up to one year). -1 0 1 2 3 4 5 6 -1 0 1 2 3 4 5 6 2011 2012 2013 2014 United States Japan Euro area Easierconditions Source: OECD May 2014 Economic Outlook database; OECD calculations Source: ECB MFI interest rates. 0 1 2 3 4 5 6 7 0 1 2 3 4 5 6 7 2011 2012 2013 2014 Germany Spain France Greece Italy Portugal
  6. Drag from fiscal consolidation in the United States and the euro area is diminishing Consolidation effort Change in underlying primary balance1 as per cent of potential GDP 1. Budget balance excluding interest payments and adjusted for the economic cycle. -1 0 1 2 -1 0 1 2 2011 2012 2013 2014 United States Euro area Japan Source: OECD May 2014 Economic Outlook database.
  7. Unemployment is falling, but from high levels, and the euro area is lagging Unemployment rate Per cent Number of unemployed persons Millions 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0 2 4 6 8 10 12 14 0 2 4 6 8 10 12 14 United States Euro area Japan 0 10 20 30 40 50 60 0 10 20 30 40 50 60 2007 2008 2009 2010 2011 2012 2013 2014 2015 Other OECD USA Euro area 11 million 17 million 15 million 7 million 12 million 19 million Source: OECD May 2014 Economic Outlook database.
  8. RISKS
  9. Falling inflation in the euro area points to increased deflation risks Euro area headline inflation1 Per cent 1. Year-on-year change of harmonised index of consumer prices. Inflation expectations in the euro area From inflation swaps; 10-day moving average, in per cent 0 1 2 3 0 1 2 3 2011 2012 2013 2014 2015 2011 2012 2013 2014 0 1 2 3 0 1 2 3 Between 1 and 2 years Between 5 and 10 years Source: OECD May 2014 Economic Outlook database. Source: Datastream; OECD calculations.
  10. Credit has grown quickly in some EMEs, increasing financial vulnerabilities Credit growth to the private sector1 Per cent 1. Average annual growth between end-December 2006 and end-September 2013. Selected shadow banking products in China Per cent of GDP 0 5 10 15 20 25 0 5 10 15 20 25 Average credit growth for US, euro area, Japan Source: BIS; OECD calculations. Source: CRBC; Kwan (2014); Bureau national des statistiques de Chine; et la Chine fiduciaire Association. 0 10 20 30 40 0 10 20 30 40 2008 2009 2010 2011 2012 2013 Wealth management products Trust assets
  11. POLICY REQUIREMENTS
  12. United States: gradually reduce monetary stimulus, strengthen active labour market policies Household consumption Volume index, 2007=100 Employment and labour force participation Per cent of working age population 2007 2008 2009 2010 2011 2012 2013 2014 50 55 60 65 70 50 55 60 65 70 Unemployed Employed 2007 2008 2009 2010 2011 2012 2013 2014 2015 95 100 105 110 115 95 100 105 110 115 Source: OECD May 2014 Economic Outlook database.
  13. Euro area: monetary stimulus needed alongside banking system repair Bank credit to non-financial private corporations Percentage change1 Unemployment rate Per cent 2006 2008 2010 2012 2014 0 5 10 15 20 25 30 0 5 10 15 20 25 30 Germany France Italy Spain Portugal Greece -12 -6 0 6 -12 -6 0 6 March 2012 - March 2013 March 2013 - March 2014 Source: OECD May 2014 Economic Outlook database. Note: February to February for Italy. 1. Adjusted for loan sales and securitisation. Source: ECB; Bank of Italy.
  14. Japan: continue with monetary easing and fiscal consolidation, launch 3rd arrow (structural reform) Core inflation1 Per cent Gross government debt Per cent of GDP -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2012 2013 2014 Initiation of “Q-squared” easing by BoJ 190 200 210 220 230 240 190 200 210 220 230 240 2011 2012 2013 2014 2015 Source: OECD May 2014 Economic Outlook database. 1. Excluding food and energy.
  15. Reforms are needed to address the scars from the crisis and boost growth Estimated effects of the crisis on potential per capita output of OECD countries Percentage deviation from pre-crisis scenario1 OECD structural unemployment Per cent of labour force 2007 2009 2011 2013 2015 6.0 6.5 7.0 7.5 6.0 6.5 7.0 7.5 2007 2009 2011 2013 2015 2017 -12 -10 -8 -6 -4 -2 0 2 -12 -10 -8 -6 -4 -2 0 2 Upper/lower quartile OECD aggregate 1. In the counter-factual baseline, productivity growth continues at its 2000-07 rate and structural unemployment and participation rates remain at their 2007 levels. Source: OECD May 2014 Economic Outlook database; OECD calculations.
  16. A faster pace of structural reform is needed in the BRIICS also, given the slowdown in potential growth . Potential output growth Per cent 0 2 4 6 8 10 12 0 2 4 6 8 10 12 China India Russia Indonesia South Africa Brazil 2007 2014 Source: OECD May 2014 Economic Outlook database.
  17. Key messages . Major advanced economies are building momentum, driving the pick-up in global growth. Nevertheless, risks remain that could blow the recovery off course. More ambitious structural reforms are needed to create jobs and sustain stronger growth.

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