1. Putting the euro area on
a road to recovery
Paris, 25th November 2014
11h30 Paris time
Catherine L. Mann
OECD Chief Economist

2. Key messages
The euro area continues to hinder global growth, which remains modest
Europe is doing poorly above all because of the lack of demand
Structural factors braking potential growth are interacting with demand weakness,
raising the risk of prolonged stagnation
Constrained demand management policies explain part of this weakness
Some countries have made good progress on structural reforms to reverse the
decline in growth, but others have to make greater efforts
Monetary, fiscal and structural policies are complementary tools to promote a
faster and more widely shared recovery
2

3. The global economy is stuck in low gear
World GDP growth1
Per cent, seasonally adjusted annualised rate
1. GDP calculated at PPP exchange rates.
2. Weighted average of the Czech Republic, Hungary and Poland, where weights are moving nominal GDP measured at USD PPP.
3. Weighted average of Denmark, Norway and Sweden, where weights are moving nominal GDP measured at USD PPP.
Source: November 2014 Economic Outlook database.
-8
-6
-4
-2
0
2
4
6
8
-8
-6
-4
-2
0
2
4
6
8
Average, 1995-2007
GDP
Volume, percentage change
3
Column1 2013 2014 2015 2016
World 3.1 3.3 3.7 3.9
United States 2.2 2.2 3.1 3.0
Euro area -0.4 0.8 1.1 1.7
Japan 1.5 0.4 0.8 1.0
BRIICS 5.5 5.1 5.4 5.6
OECD Europe excl. euro area 2.0 2.8 2.7 3.0
Of which:
- UK 1.7 3.0 2.7 2.5
- CEE32 1.2 3.1 2.7 3.1
- Scandinavia3 0.8 1.6 2.1 2.6

4. Sluggishness is not evenly spread – the
euro area is a locus of weakness
GDP per capita
Volume index, 2008 = 100
Source: November 2014 Economic Outlook database.
4
94
96
98
100
102
104
106
108
110
94
96
98
100
102
104
106
108
110
Euro area Japan OECD Europe excl. euro area United States

5. Slow growth in Europe matters for
world trade and output
Share of world trade (2013)
Per cent
Source: November 2014 Economic Outlook database.
Share of world GDP (2013)
Per cent
5
Euro area
22%
Non-euro
area EU
Rest of the 8%
world
70%
Euro area
25%
Non-euro
area EU
11%
Rest of the
world
64%

6. The expected follow-through to the initial
recovery has been repeatedly delayed
Source: November 2010, 2011, 2012, 2013 and 2014 Economic Outlook databases.
Past Economic Outlook projections of euro area GDP
Volume index, Q1 2008 = 100
6
92
94
96
98
100
102
92
94
96
98
100
102
Nov-10 Nov-11 Nov-12 Nov-13 Nov-14

7. The realisation of downside risks would
leave the euro area in stagnation
1. Downside scenario shown in red. The shocks modelled in the downside scenario are a 50 basis point reduction in inflation
expectations, a 10% decline in equity prices and a 100 basis point increase in the corporate bond spread, the equity risk premium
and the spread between household borrowing and lending rates.
Source: November 2014 Economic Outlook database; and OECD calculations.
7
Growth, inflation and unemployment in a downside scenario1
Inflation
Per cent
GDP
Annual percentage change
Unemployment rate
Per cent
-1
0
1
2
3
-1
0
1
2
3
0
1
2
3
0
1
2
3
Average 1999-2007
ECB's inflation target
8
9
10
11
12
8
9
10
11
12
Average 1999-2007
Average 1999-2007

8. Source: November 2014 Economic Outlook database.
GDP, exports, consumption and investment
Volume indices, Q2 2009 = 100
Post-crisis euro area output weakness: not
export performance, but domestic demand
8
90
100
110
120
130
90
100
110
120
130
Real GDP Consumption Fixed investment Exports

9. Part of the euro area’s relative demand
weakness reflects constrained policies
Central bank assets
Per cent of broad money (M3)
Source: Datastream; National Central Banks; and November 2014 Economic Outlook database.
Change in underlying primary balance
Per cent of potential GDP
9
0
5
10
15
20
25
30
35
40
45
0
5
10
15
20
25
30
35
40
45
United States Euro area
Japan United Kingdom
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
United States United
Kingdom
Japan Euro area
2007-2009 2009-2011 2011-2013

10. Macroeconomic policies in the euro area:
now becoming less of a drag on demand
ECB assets
Trillions of euros
Source: Datastream; and November 2014 Economic Outlook database.
10
Underlying primary balance
Annualised change during period, per cent of potential GDP
-1
0
1
2
3
4
5
6
7
8
-1
0
1
2
3
4
5
6
7
8
2012-2013 2014-2016
0
1
2
3
4
0
1
2
3
4
ECB's target

11. The overall euro area story masks
divergences in performance
GDP
Volume index, Q1 2008 = 100
Source: November 2014 Economic Outlook database.
11
60
70
80
90
100
110
80
85
90
95
100
105
2008 2009 2010 2011 2012 2013 2014
Germany France Italy Spain Portugal Ireland Greece (RHS)

12. Structural reform intensity in recent years
has been highest in the euro area periphery
Note: The responsiveness rate is calculated as the share of recommendations in Going for Growth 2011 for which 'significant'
action has been taken, where each recommendation is weighted by the inverse of average responsiveness to priorities in this
area in non-crisis circumstances, in order to reflect the fact that some areas of reform are more difficult than others. Aggregates
are unweighted averages. Periphery includes Estonia, Greece, Ireland, Italy, Portugal, the Slovak Republic, Slovenia and
Spain. Core is other euro area countries. Non-euro area OECD Europe includes the UK, Switzerland the Czech Republic,
Poland, Hungary, Sweden, Norway, Turkey, Iceland, and Denmark.
Source: Going for Growth (2015, forthcoming; figures are preliminary); and OECD calculations.
Responsiveness to Going for Growth reform priorities
Responsiveness rate (per cent)
12
0
10
20
30
40
50
60
70
0
10
20
30
40
50
60
70
Periphery euro area Core euro area Non-euro area OECD Europe
2011-12 2013-14

13. 1. Inflation to October 2014, unemployment rate as of September 2014.
Source: Eurostat.
13
Inflation1
HICP ,12-month percentage change
Unemployment rate1
Per cent
Inflation is too low across the euro area, and
where it is lowest unemployment is very high
0
5
10
15
20
25
30
0
5
10
15
20
25
30
-2
-1
0
1
2
-2
-1
0
1
2
ECB's target

14. Note: Non-euro area countries shown in red.
Source: November 2014 Economic Outlook database.
Fiscal consolidation in a slow-growth
environment: significant employment pain
14
Change in underlying primary balance and unemployment, 2007-14
AUT
BEL
FIN
FRA
DEU
GRC
IRL
LUX ITA
NLD
PRT
SVK
SVN
USA
JPN
GBR
-5
0
5
10
15
20
-5 0 5 10 15 20
Change in underlying primary balance,
% potential GDP
Change in unemployment rate, percentage points

15. Structural flaws like incomplete banking union
help explain the persistence of weak demand
1. Nominal interest rate minus latest 12-month inflation (HIPC).
Source: ECB.
Real interest rates1 on bank lending to enterprises
Per cent
15
-2
0
2
4
6
8
10
-2
0
2
4
6
8
10
Germany Spain France Greece Italy

16. Credit has failed to revive in the periphery
Note: OECD Europe excl. euro area is aggregated in USD at Q1 2010 exchange rates. Euro area periphery is Greece, Italy,
Portugal and Spain. Core euro area is Austria, Belgium, Finland, France, Germany, Luxembourg and the Netherlands.
Source: BIS.
Credit to non-financial corporations
Index, 2010 = 100
16
90
95
100
105
110
115
120
125
90
95
100
105
110
115
120
125
Core euro area countries Periphery euro area countries
United States Japan
OECD Europe excl. euro area

17. Existing ECB Measures ECB Policy Options
Very low policy rates (incl. negative
deposit rates)
Open-ended or large-scale asset purchases:
Long-Term Refinancing Operations
(LTROs)
• Increased outright purchases of asset-backed
securities and covered bonds
Targeted Longer-Term Refinancing
Operations (TLTROs)
• Outright purchase of sovereign bonds
Outright purchases of asset-backed
securities and covered bonds
• Outright purchase of investment-grade
corporate bonds
Forward guidance
The ECB must act decisively to support
growth and head off deflation
Monetary policy stimulus – beyond measures already
announced – is needed in combination with banking union and
structural reforms
17

18. Fiscal policy: all available flexibility
should be used
Flexibility and discretion within the EU fiscal rules should be
used to reduce the drag on demand
Germany: higher spending (e.g. childcare facilities,
infrastructure) would add to euro area demand while addressing
structural weaknesses
France and Italy: delayed consolidation can be justified in a
context of weak growth and new structural reforms
Automatic stabilisers should be allowed to play fully
18

19. Fiscal policy: a reversal of the compression
of public investment would help
Government investment
Volume index, 2009=100
Source: November 2014 Economic Outlook database.
19
0
20
40
60
80
100
120
140
0
20
40
60
80
100
120
140
Germany
United Kingdom
France
Spain
Greece
Portugal

20. Structural policies: making full use of
demand management tools is not enough
20
Structural flaws are impeding the effectiveness of demand
management tools
The longer-term deterioration in potential output growth needs to
be addressed by structural policies

21. Some structural reforms could boost
potential without widening the output gap
21
There is scope to make the composition of government revenues
and expenditures more growth-friendly (e.g. in Italy, Spain)
Reducing labour tax wedges can boost labour demand (e.g. in
France)
Liberalising services regulation can stimulate investment (e.g. in
Germany)
More ambitious action to complete the Single Market would have a
major impact (all countries)
Credible reform packages can improve confidence, giving an
immediate boost to demand

22. Deficient demand (especially investment)
has in turn sapped potential output
Note: The chart shows the level of potential output in 2014 relative to a counter-factual based on pre-crisis trends. For the majority of
countries, the crisis has clearly been associated with lower potential output. Nevertheless, for a few countries the difference is
positive or only slightly negative, which is explained by a variety of factors: structural reforms (e.g. Germany); and in a number of
countries labour force participation has been much stronger than would have been anticipated on the basis of pre-crisis trends.
Source: OECD calculations.
22
Level of potential output in 2014 relative to pre-crisis trend
Percentage points of pre-crisis trend potential GDP
-30
-25
-20
-15
-10
-5
0
5
10
-30
-25
-20
-15
-10
-5
0
5
10

23. Key messages
The euro area continues to hinder global growth, which remains modest
Europe is doing poorly above all because of the lack of demand
Structural factors braking potential growth are interacting with demand weakness,
raising the risk of prolonged stagnation
Constrained demand management policies explain part of this weakness
Some countries have made good progress on structural reforms to reverse the
decline in potential growth, but others have to make greater efforts
Monetary, fiscal and structural policies are complementary tools to promote a
faster and more widely shared recovery
23

24. 24
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