What is the economic outlook for OECD countries?

(1)

What is the economic outlook for OECD countries?

Council

16 ^th September 2011

Jørgen Elmeskov

Deputy Chief Economist

Council

16 September 2011

(2)

Growth slowdown across major OECD and non‐OECD economies

OECD majors GDP growth

Quarterly GDP growth

World GDP growth

Contributions to quarterly GDP growth

d own d own

Quarterly GDP growth, annualised, in per cent

Contributions to quarterly GDP growth, annualised, in per cent

4 6 8

5 10 15

United States Japan Euro area

G ro w th slo w d G ro w th slo w d

-4 -2 0 2

-15 -10 -5 0

Source: OECD Quarterly National Accounts database; and national sources.

GG

-8 -6

2006 2007 2008 2009 2010 2011 Non-OECD

OECD

-25 -20

2006 2007 2008 2009 2010 2011

(3)

World trade has turned flat

CPB indicator of world trade

Index: 2000 = 100

180 180

d e d e

¹⁴⁰

150 160 170

140 150 160 170

Wo rl d tr ad Wo rl d tr ad

90 100 110 120 130

Source: Dutch Central Planning Bureau.

80 90

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

(4)

Unemployment no longer falling

Unemployment rate

In percent of labour force

12 12

ke ts ke ts

⁸

10

8 10

Labour mar Labour mar

2 4 6

Source: OECD Main Economic Indicators; and Eurostat.

0 0

2006 2007 2008 2009 2010 2011

Euro area

(5)

Causes of slowdown have implications

• Japan disaster and its global impact will see reversal

w do wn w do wn

• Commodity prices have now stabilised and their drag will fade

• Fiscal consolidation may have been faster than anticipated

auses of slo w auses of slo w

• Faster private sector balance sheet adjustment

• Policy uncertainties have led to snowballing loss of confidence in households, firms and financial sectors

C a C a

(6)

Impact of Japan disaster is fading

0 0

Car production

12‐month percent change, number of units produced

ste r ste r

-30 -20 -10 0

Japan disa s Japan disa s

70 -60 -50 -40

Japan

Note: 2011

Source: Toyota Motor Corporation and Honda Motor Co. Ltd monthly reports.

-80 -70

Jan-Feb Mar Apr May Jun Jul

Rest of the World

(7)

Commodity prices remain high

160 350

Index: Jan 2000 = 100; US$ per barrel (Brent)

p rices p rices

¹⁰⁰

120 140

200 250 300

Agricultural raw materials Food

Metals and minerals Oil $US (right scale)

C ommodity p C ommodity p

20 40 60 80

50 100 150

Source: OECD Main Economic Indicators; and Datastream.

CC

0 0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

(8)

Confidence has weakened

Business confidence Consumer confidence

2

2 2 2

cece

^-1

0 1

-1 0 1

Confiden c Confiden c

4 -3 -2 1

United States Japan Euro Area

-3 -2 1

Note: Manufacturing PMI. Normalised and presented in units of standard deviation.

Source: Markit.

Note: Normalised and presented in units of standard deviation. Source: OECD Main Economic Indicators;

Japanese Cabinet Office.

-4 -4

2005 2006 2007 2008 2009 2010 2011

-4 -4

05 06 07 08 09 10 11

(9)

Higher risk perceptions reflected in yields

Euro‐area sovereign bond yields

In per cent

Corporate bond yields

In per cent

con fidence con fidence

8 10 12

12 14 16 18 20

Germany Greece Ireland Italy Portugal Spain

cial mark et c cial mark et c

2 4 6

US high yield US BBB

Euro area high yield 2

4 6 8 10

2 4 6 8 10

Source: Datastream; and OECD Main Economic Indicators.

Finan c Finan c

0 0

nov.-10 févr.-11 mai-11 août-11 g y

Euro area BBB 0

0

janv.-10 juil.-10 janv.-11 juil.-11

(10)

Equity prices have tumbled

Index: August 2008 = 100

120 120

cesces

80 100

Equity pri c Equity pri c

20 40 60

United States Japan

China France

Germany United Kingdom

Note: United States: Wilshire 5000; France: CAC‐40; Germany: DAX Index; Japan: Nikkei 225;

United Kingdom: FTSE 100; China: Shanghai Composite Index.

Source: Datastream.

0 0

2008 2009 2010 2011

(11)

The near‐term outlook

Annualised quarter‐on‐quarter GDP growth, in per cent

2011 Q1 2011 Q2 2011 Q3 2011 Q4

smen t smen t

Q Q Q Q

United States 0.4 1.0 1.1 0.4

Japan ‐3.6 ‐1.3 4.1 0.0

Germany 5.5 0.5 2.6 ‐1.4

France 3.6 0.0 0.9 0.4

Italy 0 6 1 0 ‐0 1 0 1

n te ri m Asses s n te ri m Asses s Italy 0.6 1.0 0.1 0.1

United Kingdom 1.9 0.7 0.4 0.3

Canada 3.6 ‐0.4 1.0 1.9

G7 0.8 0.4 1.6 0.2

G7 excluding Japan 1.6 0.7 1.1 0.2

1. Weighted average of Germany, France and Italy.

Source: OECD, Quarterly National Accounts database; and OECD Indicator Model forecasts.

InIn G e c ud g Japa 6 0 0

Euro 3 ¹ 3.7 0.5 1.4 ‐0.4

(12)

Recent weakness is expected to continue for the next two quarters in most major OECD economies

Annualised quarter‐on‐quarter real GDP growth, in per cent

3 4 5 6

smen t smen t

United States

* ‐ EO89 projections

¹

Euro 3 (Germany, France Italy)

3 4 5 6

-1 0 1 2

n te ri m Asses s n te ri m Asses s

-1 0 1 2

-2

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2009 2010 2011

1. Refers to OECD Economic Outlook No. 89 projections (published in May 2011).

Source: OECD, Quarterly National Accounts database; OECD Economic Outlook 89 database;

and OECD Indicator Model forecasts.

InIn

^-2

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2009 2010 2011

(13)

Policy imperative is to restore confidence:

medium term

ss y imper ativ es y imper ativ es

• Fiscal consolidation

• Structural policies

m ‐te rm polic y m ‐te rm polic y

• Banking recapitalisation

• Euro‐area architecture

Mediu m Mediu m

(14)

Policy imperative is to restore confidence:

short term

mper at iv es mper at iv es

• Euro‐area debt/financial crisis

• Monetary policy

term policy i term policy i

• Fiscal policy

• Exchange rate adjustment

Short ‐t Short ‐t

(15)

Room for monetary policy response in some economies

Central bank policy rates

percentage points

o licy o licy

percentage points

12 14 16 18

United States Euro area

Japan India

China Brazil

Monet ar y p o Monet ar y p o

4 6 8 10

0 2

2008 2009 2010 2011

(16)

Fiscal consolidation required is large in many countries

Improvement in underlying primary balances

percentage points of GDP

cycy

percentage points of GDP

8 10 12

Additional consolidation required after 2012

Projected 2010-12 consolidation

Fisc al poli Fisc al poli

2 4 6

Note: Consolidation through 2011 and 2012 as projected in Economic Outlook 89; consolidation after 2012 assumed to be an additional ½ percentage points of GDP each year.

What is the economic outlook for OECD countries?