This presentation by Christian Kastrop, OECD, was made at the 35th Meeting of Senior Budget Officials held in Berlin on 12-13 June 2014. Find more information at http://www.oecd.org/gov/budgeting/35thannualmeetingofoecdseniorbudgetofficialssboberlingermany12-13june2014.htm

1. Recent economic
developments and the
near-term economic
outlook
Christian Kastrop
Director, Policy Studies Branch
Economics Department

2. OECD economies are driving the
pick-up in global growth
2
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. 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

4. Drag from fiscal consolidation
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.

5. Labour market slack is generally shrinking,
though the euro area is lagging
5
1. The NAIRU is based on OECD estimates.
Source: OECD National Account database. Source : OECD STEP 95 database.
% of labour force
Unemployment rate Actual and structural unemployment rates, euro area
% of labour force
6
7
8
9
10
11
12
13
6
7
8
9
10
11
12
13
Unemployment rate NAIRU¹
0
2
4
6
8
10
12
14
0
2
4
6
8
10
12
14
United States Euro area
United Kingdom Japan

6. Persistent low inflation or even deflation
are risks in the euro area
6

7. Credit has grown quickly in some EMEs,
worsening financial vulnerabilities
. 7
Source: BIS.
Credit to the private non-financial sector
Percent of GDP
0
20
40
60
80
100
120
140
160
180
CHN TUR BRA RUS IND IDN MEX
2012 2007

8. Most countries have made good progress on
fiscal consolidation, but further effort is needed
in many cases
8
Note: The average measure of consolidation is the difference between the underlying primary balance in 2015 and the average
underlying primary balance between 2016 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 debt target is achieved.
Source: OECD STEP 95 long-term database.
Consolidation requirements to reduce government debt to 60 per cent of GDP
Change in the underlying primary balance, percentage points of GDP
-2
0
2
4
6
8
10
12
14
16
18
20
NLD
AUT
BEL
SVN
DEU
SVK
ISR
FIN
CZE
ITA
GRC
EA15
IRL
ISL
HUN
PRT
CAN
OECD
FRA
USA
ESP
GBR
JPN
Average 2016-30 2014-15 2010-13

9. 9
Where is the economy going in the medium-term?
Underlying spending pressures
Will countries be able to see through consolidation?
3 key risks for fiscal policy

10. 10
Medium-term growth is highly uncertain

11. 11
Health
care 1
Long-term
care 1
Pensions Total
Canada 1.4 0.2 1.2 2.9
France 1.2 0.2 0.5 1.9
Germany 1.3 0.3 1.5 3.1
Italy 1.3 0.3 -0.4 1.2
Japan 1.4 0.3 na 1.7
Korea 1.7 0.4 1.4 3.5
Mexico 1.3 0.4 0.4 2.1
United Kingdom 1.1 0.2 0.3 1.6
United States 1.2 0.1 0.1 1.5
Changes in public spending on health and pensions
2015-30, percentage points of GDP
Health, long-term care and pensions pressures
on government spending

12. Can fiscal consolidation be achieved?
12
.
-10
-8
-6
-4
-2
0
2
USA DEU FRA ITA GBR CAN ESP PRT IRL GRC
2010 to 2013 2013 to 2015
Change in underlying government spending, % of GDP