What is the economic outlook for OECD countries?

Paris, 22 May 2012 10h Paris time

Angel Gurra
Secretary-General
&

Pier Carlo Padoan

Deputy Secretary-General and Chief Economist
1

The outlook
Real GDP growth, in per cent 2010 United States Euro area Japan 3.0 1.9 4.5 3.2 7.6 10.4 10.6 6.2 4.3 2.9 2011 1.7 1.5 -0.7 1.8 2.7 9.2 7.3 6.5 4.3 3.1 2012 2.4 -0.1 2.0 1.6 3.2 8.2 7.1 5.8 4.5 3.3 2013 2.6 0.9 1.5 2.2 4.2 9.3 7.7 6.0 4.1 4.2

The outlook

Total OECD Brazil China India Indonesia Russian Federation South Africa

Source: OECD Economic Outlook 91 database.

2

Growth outlook different across regions

Annualised quarterly real GDP growth, in per cent
10 10

The outlook

-5

-5

-10

-10

United States Euro area

-15 -15

Japan

-20 2008 2009 2010 2011 2012 2013

-20

Source: OECD Economic Outlook 91 database.

3

Moderate pickup in world trade

CPB indicator of world merchandise trade, 2001 = 100
180 170 160 150 180 170 160 150 140 130 120 110 100

World trade

140 130 120 110 100

90
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

90

Source: CPB.
4

World growth sustained by emerging economies

Contribution to annualised quarterly world real GDP growth, percentage points
8 6 4 8 6 4 2 0 -2

World growth

2 0 -2

Non-OECD
-4 -4

OECD
-6 -8 2007 2008 2009 2010 2011 2012 2013 -6 -8

Note: Calculated using moving nominal GDP weights, based on national GDP at purchasing power parities. Source: OECD Economic Outlook 91 database.

Unemployment rates are diverging

Unemployment rate, percentage of labour force
12 11 10 12

United States Euro area Japan

11 10 9 8

Unemployment

9 8

7
6 5 4 3 2 2006 2007 2008 2009 2010 2011 2012 2013

7
6 5 4 3 2

Source: OECD Economic Outlook 91 database.

6

Business confidence weak in euro area

Purchasing Managers Index (PMI) for manufacturing and services
United States
65 60 65 60 55 50 45 40 35 65 60 55 50 45 40 35 30 25 2008 2009 2010 2011 2012

Euro area
65 60 55 50 45 40 35

Business confidence

55 50 45 40 35 30

Manufacturing Non manufacturing

2008 2009 2010 2011 2012

30

Manufacturing Services

30 25

25

25

Note: Values greater than 50 signify an improvement in economic activity. Source: Markit Economics Limited.
7

Consumption has stagnated in euro area

Private consumption volumes, index 100 at cycle troughs
United States
120
1980:Q2 trough 1991:Q1 trough

Euro area
120
120 1982:Q3 trough 1993:Q1 trough 2009:Q1 trough 115 120

Private consumption

115

2009:Q2 trough

115

115

110

110

110

110

105

105

105

105

100

100

100

100

95 -4 -2 0 2 4 6 8 10 12 14 16 18

95

95

95

-4 -2 0 2 4 6 8 10 12 14 16 18

Note: Private consumption volumes are indexed to 100 in the quarter in which they reached the lowest level during the last three recessions. Zero on the horizontal axis corresponds to the quarter of these troughs. Source: OECD Economic Outlook 91 database.

Lending to consumers is growing robustly in the United States

Annualised monthly percentage change
Total US consumer loans
18 18

Euro area bank loans to private sector

18 18

Lending indicators

12

12

12

12

-6

-6

-6

-6

-12 2007 2008 2009 2010 2011 2012

-12

-12 2007 2008 2009 2010 2011 2012

-12

Note: Annualised monthly rate of change of seasonally adjusted stocks, in per cent. Euro area data are adjusted for the impact of securitisation. Last observation: March 2012 Source: Datastream and ECB.

Deleveraging has barely begun in the euro area

Household gross debt, percentage of net disposable income
150 150

Household deleveraging

140
130

140
130

United States
120 110 100 90 80 70 1995 1997 1999 2001 2003 2005 2007 2009 2011

Euro area 3 Japan

120 110 100 90 80 70

Note: Data for USA and Japan are not consolidated. For 2011 Q3 data are growth rates (2010 end of year to 2011 Q3) of balance sheets published by US Federal Reserve, Bank of Japan, and ECB. Euro area 3 is Germany, France and Italy. Source: OECD Annual National Accounts.

10

Underlying inflation to remain moderate

Core inflation, 4-quarter percentage change
3 2.5 2 1.5 1 3 2.5 2 1.5 1 0.5 0 -0.5

Inflation

0.5 0 -0.5 -1 -1.5 -2 2007 2008 2009 2010 2011 2012 2013 Note: United States - deflator of personal consumption expenditures (PCE) excluding food and energy; Euro area - harmonised index of consumer prices (HICP) excluding food, energy, tobacco and alcohol; Japan consumer price index (CPI) excluding food and energy. Source: OECD Economic Outlook 91 database.

United States Euro area

-1 -1.5 -2

Japan

11

Monetary policy rates accommodative

Policy interest rates, in per cent
4.5 4 4.5

United States Euro area

4 3.5 3 2.5 2 1.5 1 0.5 0

Monetary policy rates

3.5 3 2.5 2 1.5 1 0.5 0 2008 Source: Datastream.

Japan

2009

2010

2012

12

Central bank balance sheets supportive

Central bank liabilities, local currency
3500 3500

United States (bn dollars)

Central bank balance sheets

3000

Euro area (bn euros) Japan (100 bn yens)

3000

2500

2500

2000

2000

1500

1500

1000

1000

500 2007

500 2008 2009 2010 2011 2012

Source: Federal Reserve; Bank of Japan; and European Central Bank.

13

Fiscal consolidation combines spending reductions and tax increases

Change in the underlying primary balance 2011-13, in per cent of potential GDP
8 7 8

Revenue side Spending side

7 6

Fiscal consolidation

Total consolidation
5 5

4
3 2 1 0 -1 ESP PRT GRC AUS ITA HUN SVN IRL POL SVK NLD FRA USA BEL GBR CZE NZL NOR ISL CAN AUT FIN SWE KOR ISR EST LUX JPN CHE DEU DNK Note: Total consolidation is the projected difference in the underlying primary balance; revenue side is the projected increase in the underlying receipts excluding interest earned on financial assets; and spending side is the projected decline in the underlying primary spending excluding interest payments on debt. Source: OECD Economic Outlook 91 database; and OECD calculations.

4
3 2 1 0 -1

14

Government debt sustainability remains a long-term challenge

Government debt sustainability
Average increase in the underlying primary balance from 2011 to 2030, in percentage points of GDP
16 16

Debt stabilisation
14

Debt ratio to 60%

14

12
10 8 6 4 2 0 -2 JPN GRC PRT USA ESP GBR IRL POL SVN SVK OECD NZL AUS HUN CZE NLD FIN FRA CAN ITA EA15 ISL LUX EST ISR BEL SWE KOR AUT CHE DNK DEU

12
10 8 6 4 2 0 -2

Note: See OECD Economic Outlook 91 for methodology. The bars show the average improvement in the underlying primary balance between 2011 and 2030 necessary to either stabilise government debt ratios or bring them down to 60% of GDP. In Japans case, the average consolidation shown would be sufficient to stabilise the debt ratio but only after 2030. Source: OECD Economic Outlook 91 long-term database.

15

Rebalancing underway in euro area

Changes in domestic demand and trade balances, 2009-13
Cumulative change in domestic demand between 2009 and 2013 (%) 20 15 10 5

LUX FIN DEU

Euro area rebalancing

AUT BEL
FRA NLD ITA

SVK

0
-5

SVN
-10 -15 -20 -25 -6 -4 -2 0 2 4 6 8

ESP PRT

IRL

GRC
10 12

Change in merchandise trade balance between 2009 and 2013 (% of GDP) Source: OECD Economic Outlook 91 database.
16

Unit labour costs have begun to adjust

Unit labour cost, 1999 = 100
160 160

2009
150

2013
150

Unit labour costs

140

140

130

130

120

120

110

110

100

100

GRC

IRL

ESP

ITA

PRT

NLD

FIN

BEL

FRA

AUT

DEU

Source: OECD Economic Outlook 91 database.

17

Euro area policy compact

Goals Avoid downside scenario Create conditions for sustained growth Strengthen monetary union

Euro area policy

This requires National policies European policies

18

Euro area policy compact national policies

Pro-growth structural reforms Boost growth through productivity and employment Strengthen competitiveness Protect weak segments of population Contribute to current account rebalancing Wage adjustment in deficit and surplus countries Growth friendly fiscal consolidation Medium term plans Composition of spending cuts and revenues

Euro area policy

Financial system repair Transparency in balance sheet assessment Recapitalise viable banks
Reforms have already started in many countries. Benefits could materialise earlier than expected.
19

Large potential gains from a broad package of reforms

Overall GDP per capita gains over 10-year horizon, in per cent
20 18 20 18 16 14 12 10 8 6 4 2 0 IRL LUX NLD DEU FIN PRT ITA ESP FRA AUT GRC BEL

Gains from reform

16 14 12 10 8 6 4 2 0

Note: Estimated cumulative GDP impact from reforms specified in Bouis and Duval (2011). The coverage of reforms varies across countries, partly because of data coverage issues. This figure therefore does not show a ranking across countries but possible effects from structural reforms. Source: R. Bouis and R. Duval (2011), OECD Economics Department Working Papers, No. 835.

20

Euro area policy compact EU policies

Firewall Has been strengthened Could be enhanced Fiscal compact Implementation, transparency, communication Growth Single Market can deliver (much) more Innovation can be boosted (EU patent) EIB lending, infrastructure investment Jointly guaranteed bonds Redirect structural funds European Central Bank Balance sheet could be used more broadly Interest rate can be lowered
21

Euro area policy

What is the economic outlook for OECD countries?

Paris, 22 May 2012 10h Paris time

Angel Gurra
Secretary-General
&

Pier Carlo Padoan

Deputy Secretary-General and Chief Economist
22