15 July 2014
Recent economic developments and the outlook
Rintaro Tamaki
Deputy Secretary-General and Acting Chief Economist, OECD
Council 15 July 2014
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Recent economic development are broadly in line with EO95 projections
• The recovery continues but is weak.
• Recent activity indicators for Germany and France underline this weakness.
• Inflation remains well below target.
Euro area
• The effects of the tax hike on activity seem to be fading.
• Announcements on structural reform efforts (“third arrow”)
Japan
• The recovery continues to proceed more strongly than expected.
• Recent strength in house prices, especially in London, continues to play a significant role in the recovery.
UK
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The large downward revision of Q1 GDP was surprising
But, improved labour market conditions suggest strong
growth momentum
Despite the downward revision to Q1 GDP, indicators point to a continued recovery
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Japan’s third arrow
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The government issued the revised Japan Revitalisation Strategy in June
Enhancing corporate earnings
• Cut corporate income tax from 35% to below 30% during the next few years
• Improve corporate governance
• Review the Government Pension Investment Fund to encourage investment in Japanese equity markets
Labour market reform
• Create a favourable workplace for women, including through tax-benefit changes
• Promote a merit-based pay system for high-skilled workers
• Encourage the use of foreign workers through easing immigration rules
Agricultural policy reform
• Reform the Central Union of Agricultural Cooperatives
Health care reform
• Expand medical treatments combining insured and uninsured services based on patients' requests (so-called “double-billing”).
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Some measures are promising
But, some measures still lack detail on policy instruments to achieve the objectives
Important issues are not yet fully addressed, notably reform of employment protection to reduce labour market dualism
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Implementation of the “third-arrow” is key to fiscal sustainability in the medium-term
Source: OECD Economic Outlook 95 database; and OECD calculations.
Gross government debt as % of GDP
Evolution of the debt burden in Japan under different debt- reduction strategies
150 170 190 210 230 250
Fiscal consolidation
Fiscal consolidation + higher inflation
Fiscal consolidation + higher potential growth + higher inflation
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OECD 50-Year Global Scenario
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OECD 50-Year Global Scenario
Sustaining growth
Tackling rising inequality Protecting the environment
The OECD 50-Year Global Scenario helps to highlight key global challenges and how they are connected.
What are the policy challenges for the next 50 years?
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1. The Growth Challenge
Reduced scope for growth by getting more people into work
Achieving future growth requires sound policies to support more dynamic, knowledge-based high value-added economies
0 1 2 3 4 5 6
United-States Japan Euro zone China India Per cent
2010-2030 2030-2060
10
11
There will be major shifts in specialisation
63%
42%
68%
39%
54% 57%
23%
39%
29%
43%
21%
36%
18%
22%
37%
29%
8%
15% 11%
25% 28%
20%
40%
32%
2010 2060 2010 2060 2010 2060 2010 2060
OECD Emerging
Asia Rest of
world
Manufacturing Services Agriculture Energy
Shares of global exports by sector
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12
2. The Inequality Challenge:
rising income gaps in advanced countries
Ratio of gross wages of the top 90
thto the bottom 10
thpercentile
Rising wages for high-skilled workers
Incomes of low-skilled in advanced economies fall behind
0 1 2 3 4 5 6 7 8
Italy Sweden France Japan Germany OECD - 29 countries
United Kingdom
Canada United States 2010 2060
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3. The Environment Challenge:
Resource pressures will intensify
Million tonnes, CO
2equivalent
2010 48 700 million
tonnes
2060 99 500 million
tonnes GDP will increase to four times its current level
Significant costs from climate change will hit GDP before 2060
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Economic momentum is strong in the US and UK, but is weaker in the euro area Japan’s revised strategy is welcome, but more efforts will be needed
Policymakers need to look ahead to the challenges of the next 50 years
Key messages
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