oecd interim economic outlook - march 28 2013
DESCRIPTION
Global economic activity is picking up, but the continuing crisis in the euro area is delaying a meaningful recovery and job creation, the OECD said in its latest Interim Economic Assessment.TRANSCRIPT
1
What is the near-term global economic outlook?
An interim assessment
Paris, 28th March 201311h00 Paris time
Pier Carlo PadoanOECD Deputy Secretary-General and Chief Economist
2
OverviewO
verv
iew
• 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.
• 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.
3
OECD interim forecastsIn
terim
Ass
essm
ent
2012 Q3 2012 Q4
United States 3.1 0.1
Japan -3.7 0.2
Germany 0.9 -2.3
France 0.7 -1.2
Italy -0.8 -3.7
United Kingdom 3.8 -1.2
Canada 0.7 0.6
G7 1.4 -0.5
Euro area 31 0.4 -2.3
Annualised quarter-on-quarter real GDP growth, per cent
2013 Q1 2013 Q2
3.5 2.0
3.2 2.2
2.3 2.6
-0.6 0.5
-1.6 -1.0
0.5 1.4
1.1 1.9
2.4 1.8
0.4 1.0
1. Weighted average of Germany, France and Italy.Source: OECD Quarterly National Accounts; and OECD Indicator Model forecasts.
4
The near-term outlook has improvedG
row
th p
roje
ction
s
G7 real GDPAnnualised quarter-on-quarter change, per cent
2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Source: OECD Main Economic Indicators and OECD Indicator Model forecasts.
5
Emerging economies continueto drive global growth
Cont
ributi
ons
to g
loba
l gro
wth
Contribution to annual world1 real GDP growthPercentage points
Source: OECD Main Economic Indicators and Economic Outlook 92.
2007 2008 2009 2010 2011 2012 2013-3
-2
-1
0
1
2
3
4
5
6
-3
-2
-1
0
1
2
3
4
5
6Emerging economies 2
OECD
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.
6
RisksRi
sks
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.
• A widening disconnect between asset prices and real activity signalling excessive risk taking.
7
Financial markets have advanced stronglyFi
nanc
ial m
arke
ts
Equity marketsIndex, August 2011 = 100
Corporate bond spreadsPer cent
85
95
105
115
125
135
145 United States
Euro area
Japan
01-S
ep-1
126
-Sep
-11
21-O
ct-1
115
-Nov
-11
10-D
ec-1
104
-Jan
-12
29-J
an-1
223
-Feb
-12
19-M
ar-1
213
-Apr
-12
08-M
ay-1
202
-Jun
-12
27-J
un-1
222
-Jul
-12
16-A
ug-1
210
-Sep
-12
05-O
ct-1
230
-Oct
-12
24-N
ov-1
219
-Dec
-12
13-J
an-1
307
-Feb
-13
04-M
ar-1
3
0
2
4
6
8
10
12
14
0
2
4
6
8
10
12
14Euro area BBBEuro area high yieldUnited States high yieldUnited States BBB
Note: High-yield bonds (Merrill Lynch indices) less government bond yields (10-year benchmark bonds); corporate BBB-rated 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.
Note: S&P 500 Composite for the United States, Nikkei 225 for Japan, FTSE Eurotop 100 for euro area. Last observation: 21-03-2013.Source: Datastream.
8
Confidence indicators are mixed Bu
sine
ss c
onfid
ence
Business confidencePMI indicators
Consumer confidenceNormalised indices
25
30
35
40
45
50
55
60
65
70
United StatesEuro areaJapan
-3
-2
-1
0
1
2
3United StatesEuro areaJapan
Standard deviations
Note: Normalised at period average and presented in units of standard deviation. Values above zero signify levels of consumer confidence above the period average.Source: OECD Main Economic Indicators.
Note: Index, values above 50 indicating expansion.
Source: Markit Economics Limited.
9
Employment has yet to rebound strongly, especially in the euro area
Labo
ur m
arke
t con
ditio
ns
Unemployment ratePer cent
Employment ratePer cent of working age population
2008q1
2008q3
2009q1
2009q3
2010q1
2010q3
2011q1
2011q3
2012q1
2012q359
61
63
65
67
69
71
73
United StatesEuro areaJapan
Source: OECD Main Economic Indicators.
2008q1
2008q3
2009q1
2009q3
2010q1
2010q3
2011q1
2011q3
2012q1
2012q30
2
4
6
8
10
12
United StatesEuro areaJapan
Source: OECD Main Economic Indicators.
10
Inflation is lowIn
flatio
n
-2
-1
0
1
2
3United States
Headline¹
Core²
2012m7
2012m8
2012m9
2012m10
2012m11
2012m12
2013m1
2013m2-2
-1
0
1
2
3Euro area
Headline¹ Core²
-2
-1
0
1
2
3
-2
-1
0
1
2
3 Japan
Headline¹ Core²
Note: 1. Headline is Headline CPI for the
United States and Japan, and Headline HICP for the euro area.
2. Core is CPI excluding food and energy for the United States and Japan, HICP excluding energy, food, alcohol and tobacco for the euro area.
Source: OECD Main Economic Indicators.
Consumer prices12-month percentage change
11
Policy action is needed to ensure a self-sustaining recovery
Polic
y re
com
men
datio
ns
• Demand in many countries still faces headwinds.
• Given limited fiscal space, monetary policy remains a key 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.
12
The United StatesRe
com
men
datio
ns: U
nite
d St
ates
• Consumption and housing have picked up, but policy rates should 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.
13
JapanRe
com
men
datio
ns: J
apan
• 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 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.
14
The euro areaRe
com
men
datio
ns: t
he e
uro
area
• Monetary policy should be eased, given weak demand and below-target inflation. Policy rates are already low, but can be reduced 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.
15
The cost of credit still varies widelyin the euro area
Euro
are
a cr
edit
cost
s
2005m1
2005m5
2005m9
2006m1
2006m5
2006m9
2007m1
2007m5
2007m9
2008m1
2008m5
2008m9
2009m1
2009m5
2009m9
2010m1
2010m5
2010m9
2011m1
2011m5
2011m9
2012m1
2012m5
2012m9
2013m11.5
2.5
3.5
4.5
5.5
6.5
7.5
France Germany
Greece Ireland
Italy Portugal
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.
Bank loan rates for non-financial corporationsPer cent
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
are
a go
vern
men
t deb
t to
GD
P
General government debt to GDP Per cent
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.
2007q1
2007q3
2008q1
2008q3
2009q1
2009q3
2010q1
2010q3
2011q1
2011q3
2012q1
2012q320
40
60
80
100
120
140
160
180
200
220
240
20
40
60
80
100
120
140
160
180
United States (right scale)
Euro area (right scale)
Japan (left scale)
United Kingdom (right scale)
17
Euro area rebalancingEu
ro a
rea
reba
lanc
ing
• 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 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.
18
Competitiveness adjustments in the euro area are underway
Euro
are
a un
it la
bour
cos
ts
Unit labour costIndex, 1999 = 100
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 201290
100
110
120
130
140
150Core countries 1
Programme countries 1
France
Italy
Spain
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.
19
Lower periphery imports have been the main adjustment factor so far
Euro
are
a cu
rren
t acc
ount
adj
ustm
ent
2008 2009 2010 2011 201280
85
90
95
100
105
110
115
120
Core 1
Import volumes
Export volumes
2008 2009 2010 2011 201280859095100105110115120
Periphery 2
Import volumes
Export volumes
Index, 2008=100
2008q1
2008q3
2009q1
2009q3
2010q1
2010q3
2011q1
2011q3
2012q1
2012q3-10
-6
-2
2
6
Current Account BalancePer cent of GDP
Core Periphery
Note: 1. The core is here taken as comprising
Austria, Finland, Germany and the Netherlands.
2. The periphery is here defined as Greece, Italy, Ireland, Portugal and Spain.
3. Current account balance is the sum of current account balances as a percentage of the combined GDP across the countries.
Source: OECD National Accounts database, Economic Outlook 92 database and OECD calculations.
Index, 2008=100
20
What is the near-term global economic outlook?
An interim assessment
Paris, 28th March 201311h00 Paris time
Pier Carlo PadoanOECD Deputy Secretary-General and Chief Economist