The near-term global economic outlook has shown signs of improvement following a weak end to 2012, yet the euro area remains hindered by high unemployment and requires ongoing policy support. While emerging economies are driving global growth, risks such as the euro area's recession and a disconnect between financial asset prices and real economy persist. Key recommendations include monetary policy easing, the development of a banking union in the euro area, and structural reforms across OECD countries to ensure sustainable recovery.

1. What is the near-term
global economic outlook?
An interim assessment
Paris, 28th March 2013
11h00 Paris time
Pier Carlo Padoan
OECD Deputy Secretary-General and Chief Economist
1

2. Overview
• The global growth outlook is improving after a weak end to
2012.
• The starting point and pace of improvement are worse for
the euro area.
• Financial market advances are outstripping real indicators.
Overview
• Confidence is still not strong, especially in the euro area.
o Linked to high unemployment in many economies
• Policy action is still needed to support demand.
2

3. OECD interim forecasts
Annualised quarter-on-quarter real GDP growth, per cent
2012 Q3 2012 Q4 2013 Q1 2013 Q2
United States 3.1 0.1 3.5 2.0
Japan -3.7 0.2 3.2 2.2
Interim Assessment
Germany 0.9 -2.3 2.3 2.6
France 0.7 -1.2 -0.6 0.5
Italy -0.8 -3.7 -1.6 -1.0
United Kingdom 3.8 -1.2 0.5 1.4
Canada 0.7 0.6 1.1 1.9
G7 1.4 -0.5 2.4 1.8
Euro area 31 0.4 -2.3 0.4 1.0
1. Weighted average of Germany, France and Italy.
Source: OECD Quarterly National Accounts; and OECD Indicator Model forecasts.
3

4. The near-term outlook has improved
G7 real GDP
Annualised quarter-on-quarter change, per cent
2.5
2.0
Growth projections
1.5
1.0
0.5
0.0
2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2
-0.5
-1.0
Source: OECD Main Economic Indicators and OECD Indicator Model forecasts.
4

5. Emerging economies continue
to drive global growth
Contribution to annual world1 real GDP growth
Contributions to global growth
Percentage points
6 6
Emerging
5 economies 2 5
4 OECD 4
3 3
2 2
1 1
0 0
-1 -1
-2 -2
-3 -3
2007 2008 2009 2010 2011 2012 2013
Note: Calculated using moving nominal GDP weights, based on national GDP at purchasing power parity.
2013 reflects OECD projections from Economic Outlook 92.
1. World GDP is proxied by the sum of OECD and the six large non-OECD emerging economies.
2. Emerging economies are here Brazil, China, India, Indonesia, Russia and South Africa.
Source: OECD Main Economic Indicators and Economic Outlook 92.
5

6. Risks
Downside tail risks to growth are less pronounced than 6
months ago thanks to policy action in the major economies.
Remaining negative risks include:
• The euro area recession and financial system fragility.
• Fiscal deadlock in the United States, although the short-term
risk of disruptive consolidation has receded.
Risks
• A widening disconnect between asset prices and real activity
signalling excessive risk taking.
6

7. Financial markets have advanced strongly
Equity markets Corporate bond spreads
Index, August 2011 = 100 Per cent
145 United States 14 14
Euro area BBB
135 Euro area 12 Euro area high yield 12
Japan United States high yield
125 10 10
United States BBB
Financial markets
8 8
115
6 6
105
4 4
95
2 2
85
0 0
03-Nov-11
03-Jul-12
03-Nov-12
03-Jul-11
03-Sep-11
03-Sep-12
03-Jan-11
03-Jan-12
03-Jan-13
03-Mar-11
03-May-11
03-Mar-12
03-May-12
03-Mar-13
01-Jul-12
01-Nov-11
01-Jan-12
01-Mar-12
01-Nov-12
01-Jan-13
01-Mar-13
01-Sep-11
01-Sep-12
01-May-12
Note: S&P 500 Composite for the United States, Nikkei 225 for Japan, Note: High-yield bonds (Merrill Lynch indices) less government
FTSE Eurotop 100 for euro area. Last observation: 21-03-2013. bond yields (10-year benchmark bonds); corporate BBB-rated
Source: Datastream. bond yields (Merrill Lynch - average for 5-7 & 7-10 years) less
average government bond yields of same maturities. Last
observation: 22-03-2013.
Source: Datastream; OECD calculations.
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8. Confidence indicators are mixed
Business confidence Consumer confidence
PMI indicators Normalised indices
70 Standard deviations
3
65
United States
60 2 Euro area
55
Business confidence
Japan
1
50
45 0
40
United States -1
35
Euro area
30 -2
Japan
25
-3
2008m1
2008m5
2008m9
2009m1
2009m5
2009m9
2010m1
2010m5
2010m9
2011m1
2011m5
2011m9
2012m1
2012m5
2012m9
2013m1
2007m1
2007m5
2007m9
2008m1
2008m5
2008m9
2009m1
2009m5
2009m9
2010m1
2010m5
2010m9
2011m1
2011m5
2011m9
2012m1
2012m5
Note: Index, values above 50 indicating expansion. Note: Normalised at period average and presented in units of standard
deviation. Values above zero signify levels of consumer confidence above the
Source: Markit Economics Limited. period average.
Source: OECD Main Economic Indicators.
8

9. Employment has yet to rebound strongly,
especially in the euro area
Employment rate Unemployment rate
Per cent of working age population Per cent
Labour market conditions
73 12
71 10
69 8
67 6
65
4
63 United States United States
2 Euro area
Euro area
61
Japan 0 Japan
59
2008q4
2010q1
2008q1
2008q2
2008q3
2009q1
2009q2
2009q3
2009q4
2010q2
2010q3
2010q4
2011q1
2011q2
2011q3
2011q4
2012q1
2012q2
2012q3
2012q4
2011q1
2008q1
2008q2
2008q3
2008q4
2009q1
2009q2
2009q3
2009q4
2010q1
2010q2
2010q3
2010q4
2011q2
2011q3
2011q4
2012q1
2012q2
2012q3
2012q4
Source: OECD Main Economic Indicators. Source: OECD Main Economic Indicators.
9

10. Inflation is low
Consumer prices
12-month percentage change
3 United States Euro area 3
2 2
1 1
0 0
-1 -1
Headline¹ Core² Headline¹ Core²
Inflation
-2 -2
3 3
Japan Note:
1. Headline is Headline CPI for the
2 2
United States and Japan, and
1 Headline¹ Core² 1 Headline HICP for the euro area.
2. Core is CPI excluding food and
0 0 energy for the United States and
Japan, HICP excluding energy, food,
-1 -1 alcohol and tobacco for the euro
area.
-2 -2 Source: OECD Main Economic Indicators.
10

11. Policy action is needed to ensure
a self-sustaining recovery
• Demand in many countries still faces headwinds.
• Given limited fiscal space, monetary policy remains a key
Policy recommendations
instrument for supporting demand.
• Low inflation gives room for monetary policy action.
• Fiscal consolidation remains necessary in most OECD countries.
• Stronger, more sustainable and fairer growth can be achieved
through structural reform.
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12. The United States
• Consumption and housing have picked up, but policy rates should
Recommendations: United States
stay low until labour market conditions improve sufficiently and
as long as inflation expectations remain well anchored.
• The point where the costs of further quantitative easing (QE)
outweigh the benefits may be within sight, but skilful judgement
will be required to gauge the speed at which asset purchases can
be phased out.
• Fiscal policy should avoid disruptive outcomes in the near
term, while agreement is needed on a plan to reduce the deficit
over the medium term and address long-term cost pressures on
health care and pensions.
12

13. Japan
• The prospect of easier monetary policy has resulted in welcome
yen depreciation and surging equity prices. Implementation will
require more aggressive QE, with more asset purchases going to
Recommendations: Japan
long-term government and corporate bonds. An expansionary
stance should be maintained until inflation is durably around the
2% target.
• A credible plan to attain the government’s long-term fiscal targets
is needed. Controlling expenditures is key, particularly for social
security.
• Monetary, fiscal and structural policies must be applied in a
mutually reinforcing way to tackle the high level of public debt
while supporting growth.
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14. The euro area
• Monetary policy should be eased, given weak demand and below-
target inflation. Policy rates are already low, but can be reduced
Recommendations: the euro area
further, and more specific forward guidance could be given.
• The euro area remains vulnerable to feedback loops between
banking system fragility and public debt burdens. Rapid progress
must be made on the construction of a fully fledged banking
union.
• The Cypriot case, while exceptional, shows the importance of
addressing banking crises directly while creating the right
institutions at the euro area level to maintain banking system
stability.
• Existing commitments to structural budgetary consolidation should
be met, while allowing automatic stabilisers to operate fully. This
implies that nominal deficit targets are likely to be missed.
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15. The cost of credit still varies widely
in the euro area
Bank loan rates for non-financial corporations
Per cent
7.5
Euro area credit costs
6.5
5.5
4.5
3.5
France Germany
2.5 Greece Ireland
Italy Portugal
1.5 Spain
Note: Cost of credit is defined as the interest rate on new loans to non-financial corporations (all maturities) with the exception of
Greece, where it refers to new loans with a maturity of up to one year.
Source: European Central Bank.
15

16. The level and rise of public debt in the
euro area as a whole are not out of line
with other major economies
Euro area government debt to GDP
General government debt to GDP
Per cent
240 180
220
160
200
140 United States (right scale)
180
160 120 Euro area (right scale)
140
100
120 Japan (left scale)
100 80
80 United Kingdom (right
60 scale)
60
40
40
20 20
Note: For the euro area, Japan, and United Kingdom, the values from 2012 Q1 onwards are calculated using
OECD estimates of gross debt and the actual value of GDP according to national accounts statistics.
Source: OECD National Accounts database and OECD calculations.
16

17. Euro area rebalancing
• The underlying rebalancing of the economy is underway,
although the process still has some way to go.
• Considerable progress has been made on reducing structural
Euro area rebalancing
budget deficits, and in most countries the largest part of the
fiscal adjustment required after the crisis has already been
undertaken.
• Structural reforms, notably in Greece, Ireland, Italy, Portugal
and Spain, provide a solid base for a recovery in
competitiveness and an increase in employment when demand
turns around.
• The short-term costs of these adjustments would be reduced by
an improved supply of credit in debtor countries and structural
reforms to rebalance activity and demand in surplus economies.
17

18. Competitiveness adjustments in the euro
area are underway
Unit labour cost
Index, 1999 = 100
150
Euro area unit labour costs
Core countries 1
140 Programme countries 1
France
130
Italy
120 Spain
110
100
90
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Note: 1. Core countries are here defined as Germany, the Netherlands, Austria and Finland. Programme countries are Greece, Ireland
and Portugal. 2. Economy-wide unit labour costs. 2012 incorporates estimates in Economic Outlook 92. Country groupings constructed
as a chain-linked aggregates using nominal GDP weights.
Source: OECD Quarterly National Accounts database and Economic Outlook 92 database.
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19. Lower periphery imports have been the
main adjustment factor so far
Euro area current account adjustment
Index, 2008=100
Core 1 Periphery 2 Index, 2008=100
120 Import volumes 120
Import volumes
115 115
110 110
Export volumes Export volumes
105 105
100 100
95 95
90 90
85 85
80 80
2008 2009 2010 2011 2012 2008 2009 2010 2011 2012
Current Account Balance Note:
8 Per cent of GDP 1. The core is here taken as comprising
6 Austria, Finland, Germany and the
4 Netherlands.
2 2. The periphery is here defined as
0 Greece, Italy, Ireland, Portugal and Spain.
-2 3. Current account balance is the sum of
-4 current account balances as a percentage
-6 of the combined GDP across the
-8 Core Periphery countries.
-10
Source: OECD National Accounts
2008q2
2008q3
2008q1
2008q4
2009q1
2009q2
2009q3
2009q4
2010q1
2010q2
2010q3
2010q4
2011q1
2011q2
2011q3
2011q4
2012q1
2012q2
2012q3
2012q4 database, Economic Outlook 92 database and
OECD calculations.
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20. What is the near-term
global economic outlook?
An interim assessment
Paris, 28th March 2013
11h00 Paris time
Pier Carlo Padoan
OECD Deputy Secretary-General and Chief Economist
20