OECD's Interim Assessment

8/8/2019 OECD's Interim Assessment

1/23

Whatistheeconomicoutlook

forOECDcountries?

Aninterimassessment

Paris,9thSeptember2010

11hParistime

PierCarlo

Padoan

OECDChiefEconomistandDeputySecretaryGeneral


2/23


3/23

1. Recenthighfrequencyindicatorspointtoaslowdowninthepaceofrecoveryoftheworldeconomythat is somewhat more pronounced than previously anticipated. Against this background and

accordingtotheOECDshorttermforecastingmodels,growthcouldslowintheG7economiestoan

annualisedrateofabout1percent in thesecondhalfof theyear (seetableopposite).There is

nevertheless great uncertainty in the outlook arising from a combination of weaknesses and

strengths.Inparticular:

Privateconsumptiongrowthmaybe constrainedbyadditionaladjustmentsbyhouseholds to

the balancesheet losses suffered during the recession and in response to housingmarket

developments, should house prices weaken further. In addition, uncertainty about

unemploymentcouldputadamperontheexpansionofprivateconsumption.Aweakeconomy

anduncertaintyinsovereigndebtmarketsmightalsoaffectadverselythefinancialsystemand

privatedemandgrowththroughdeleteriousfeedbackmechanisms. Asforstrengths,thecomponentsofdemandthatdrivetheeconomyduringcyclicaldownturns

andupturns,suchasprivateinvestment,arealreadyatverylowlevelsinrelationtoGDP.This,

coupledwith robust corporate profits,would indicate that investment isunlikely toweaken

further

in

the

coming

months.

In

addition,

inventories

are

at

close

to

their

desired

levels,

suggesting thata renewed rundownof stockswouldbeunlikely in thenear term.Moreover,

although different financial markets have moved in different directions, overall financial

conditions in OECD countries have stabilised, although some indicators warrant caution,

includingthecostof insuranceagainstdefault,whichremainshighforbanks.Growthremains

robustinthelargeemergingmarketeconomies.

2. Asregards inflation,headlinemeasureshavepickedupsomewhat inmostmajorOECDeconomies

duetorisingcommoditypricesand,insomecountries,priceleveladjustmentsfollowingindirecttax

increases. Nevertheless, underlying inflation rates have continued tomoderate, albeit relatively

slowly, given the large excess capacity that remains in labour and productmarkets. Nearterm

expectations indicatea continuedmoderationofunderlying inflation inmostof themajorOECD

economies.Inflationarypressureshavesurfaced insomeofthelargeemergingmarketeconomies,

promptingatighteningofmonetarypolicy.

3. It isnotyetclearwhetherthe lossofmomentum intherecovery istemporaryas impliedbythe

balance of strengths and fragilities discussed above or whether it signals greater underlying

weaknessesinprivatespendingatatimewhenpolicysupportisbeingremoved.

Iftheongoingslowdown istemporary,theappropriatepolicyresponsewouldbetopostpone

the withdrawal ofmonetary support for a few months, whilemaintaining planned budget

consolidation to address unsustainable fiscal positions. Market conditions allowing, the

automaticstabilisersshouldbeallowedtoworkunimpededaroundtheplannedconsolidation

path.

On the other hand, if the slowdown reflects longerlasting forces bearing down on activity,

additional monetary stimulus might be warranted in the form of quantitative easing and

commitment to closetozero policy interest rates for a long period.Where public finances

permit,plannedfiscalconsolidationcouldbedelayed.

3


4/23

GDPgrowthintheG7economies

Inpercent

Annualisedquarteronquartergrowth1

09Q3

09Q4

10Q1

10Q2

10Q3

10Q4

UnitedStates 1.6 5.0 3.7 1.6 2.0(+/1.7) 1.2(+/1.5)

Japan 1.0 4.1 4.4 0.4 0.6(+/2.5) 0.7(+/2.7)

Euro32 2.1 1.1 1.5 5.1 0.4(+/1.5) 0.6(+/1.6)

Germany 3.0 1.2 1.9 9.0 0.7(+/1.9) 1.1(+/1.8)

France 1.1 2.3 0.7 2.5 0.7(+/1.0) 0.3(+/1.2)

Italy 1.7 0.4 1.6 1.5 0.3(+/1.5) 0.1(+/1.6)

UK 1.0 1.7 1.3 4.9 2.7(+/1.2) 1.5(+/1.3)

Canada 0.9 4.9 5.8 2.0 2.2(+/2.2) 2.3(+/2.3)

G7 1.1 3.6 3.2 2.5 1.4(+/1.7) 1.0(+/1.8)

1.GDPreleasesandhighfrequencyindicatorspublishedby8September2010. Seasonallyandinsomecasesalso

workingdayadjusted. AnnualisedrealGDPgrowthrates;associatedstandardserrorrangesareinparentheses.

2.Weightedaverageofthethreelargestcountriesintheeuroarea(Germany,FranceandItaly).

Underpinningsandstatusoftheinterimforecast

SinceMarch2003,theOECDhaspresentedabriefoverviewoftheneartermprospectsinthemajorOECD

economiesbetween

each

issue

of

the

EconomicOutlook.ThisinterimassessmentshouldnotbeseenasafullupdateofthebiannualEconomicOutlookprojections,sinceitrestsonamorelimitedinformationset,

hasashorterhorizonandcoversamuchsmallernumberofeconomicvariablesandcountries.However,it

helpsevaluatetheextenttowhichthelatestEconomicOutlookprojectionsarestillontrackforthelargereconomies.

Inthiscontext,themaintoolisasuiteofindicatorbasedmodelsthatservetoforecastrealGDPforeach

oftheG7economies.*Thesemodelscoverthetwoquartersfollowingthelastoneforwhichofficialdata

have been published. They use a small, countryspecific selection of monthly indicators, hard (e.g.

industrialproduction,retailsales)and/orsoft(e.g.businessconfidence).Thesemodelshavebeenshown

tooutperformarangeofothermodelsrelyingsolelyonpublishedquarterlydata,asregardsbothforecast

errorsize

and

directional

accuracy.

The

weight

of

the

different

models

varies

across

countries

and

over

time,accordingtoobservedforecastingperformance.ThemodelsusedfortheUSandtheUKeconomies

have beenmodified to better capture the influence of developments in the housing sector,with the

inclusionofvariousforwardlookinghousingindicators.

_______________

*SeePain,N.andF.Sdillot,IndicatormodelsofrealGDPgrowthinthemajorOECDeconomies,OECDEconomicStudies,No.40,2005 andMourougane,A., ForecastingmonthlyGDP forCanada,OECDEconomicsDepartmentWorkingPaper,No.515,2006.

4


5/23

The pace of recovery could be slower than anticipated

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

Q2 Q3 Q4 Q1 Q2 Q3 Q4

2009 2010

-4

-2

0

2

4

6

8

10

12

EO87 projection

United States

Q2 Q3 Q4 Q1 Q2 Q3 Q4

2009 2010

-4

-2

0

2

4

6

8

10

12

Japan

Q2 Q3 Q4 Q1 Q2 Q3 Q4

2009 2010

-4

-2

0

2

4

6

8

10

12

Euro 3

Q2 Q3 Q4 Q1 Q2 Q3 Q4

2009 2010

-4

-2

0

2

4

6

8

10

12

Germany

Q2 Q3 Q4 Q1 Q2 Q3 Q4

2009 2010

-4

-2

0

2

4

6

8

10

12

France

Q2 Q3 Q4 Q1 Q2 Q3 Q4

2009 2010

-4

-2

0

2

4

6

8

10

12

Italy

Q2 Q3 Q4 Q1 Q2 Q3 Q4

2009 2010

-4

-2

0

2

4

6

8

10

12

United Kingdom

Q2 Q3 Q4 Q1 Q2 Q3 Q4

2009 2010

-4

-2

0

2

4

6

8

10

12

Canada

Click here for underlying data

1. Refers to OECD Economic OutlookNo. 87 projections (published in May).

2. Weighted average of the three largest countries in the euro area (Germany, France and Italy).

Source: OECD, Quarterly National Accounts database; Datastream; Markit Economics Limited; OECD Economic Outlook 87

database; and OECD Indicator Model forecasts.

5
http://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xls


6/23

Business confidence has weakened

Purchasing Managers Indices for manufacturing and services

2008 2009 201025

30

35

40

45

50

55

60

65

25

30

35

40

45

50

55

60

65Manufacturing

Non Manufacturing

United States

2008 2009 201025

30

35

40

45

50

55

60

65

25

30

35

40

45

50

55

60

65Manufacturing

Services

Japan

2008 2009 201025

30

35

40

45

50

55

60

65

25

30

35

40

45

50

55

60

65Manufacturing

Services

Euro area

2008 2009 201025

30

35

40

45

50

55

60

65

25

30

35

40

45

50

55

60

65Manufacturing

Services

China

Source: Markit Economics Limited.

6


7/23

The bounce-back in industrial production is moderating

Year-on-year percentage changes

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2008 2009 2010

-40

-30

-20

-10

0

10

20

30

40

-40

-30

-20

-10

0

10

20

30

40United States Japan Euro area

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2008 2009 2010

-20

-15

-10

-5

0

5

10

15

20

25

-20

-15

-10

-5

0

5

10

15

20

25Brazil Russia India China


Note:Data for China are OECD estimates.

Source: Datastream.

7


8/23

The recovery in world trade is losing momentum

Manufacturing New Export Orders Index

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 201030

35

40

45

50

55

60

30

35

40

45

50

55

60

Source: Markit Economics Limited.

8


9/23

Global imbalances are widening but remain well below pre-crisis levels

Current account balance, in per cent of GDP

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009-8

-6

-4

-2

0

2

4

6

8

10

12

-8

-6

-4

-2

0

2

4

6

8

10

12United States

China

Japan

Germany

Euro area excluding Germany


Source: OECD, Quarterly National Accounts database; and OECD, Main Economic Indicators database.

9
http://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xls


10/23

The housing market has lost momentum

2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

20

40

60

80

100

%

0

20

40

60

80

100

%

Proportion of OECD countries with rising real house pricesBased on quarter-on-quarter change

2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

20

40

60

80

100

%

0

20

40

60

80

100

%

Proportion of OECD countries with rising real housing investmentBased on quarter-on-quarter change


1. House prices are deflated by the private consumption deflator. Calculation based on 19 countries (17 available in 2010 Q1).

Source: OECD Economic Outlook 87 database; and various national sources, see Table A.1 in Girouard, N., M. Kennedy, P. van denNoord and C. Andr (2006), Recent house price developments: the role of fundamentals, OECD Economics Department Working

Papers, No.475.

10


11/23

Unemployment rates appear to have peaked, albeit at high levels

In per cent of the labour force

2005 2006 2007 2008 2009 20102

3

4

5

6

7

8

9

10

11

2

3

4

5

6

7

8

9

10

11United States Euro area Japan


Source: OECD, Main Economic Indicators database.

11


12/23

Investment is particularly low

Gross fixed capital formation, in per cent of GDP

2000 2001 2002 2003 2004 2005 2006 2007 2008 200914

16

18

20

22

24

26

14

16

18

20

22

24

26United States Japan Euro area


Source: OECD, Quarterly National Accounts database.

12


13/23

Corporate profits have risen strongly

2001 2002 2003 2004 2005 2006 2007 2008 20095

6

7

8

9

10

11

12

13

14

15

5

6

7

8

9

10

11

12

13

14

15

United StatesNon-financial corporate profits in per cent of gross value added

2001 2002 2003 2004 2005 2006 2007 2008 20091.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

JapanProfits of incorporated businesses (all industries) in per cent of sales

2001 2002 2003 2004 2005 2006 2007 2008 200936.0

36.5

37.0

37.5

38.0

38.5

39.0

39.5

40.0

36.0

36.5

37.0

37.5

38.0

38.5

39.0

39.5

40.0

Euro areaGross operating surplus of non-financial corporations in per cent of gross value added


Note:Seasonally adjusted series.

Source:Bureau of Economic Analysis; Eurostat; and Datastream.

13


14/23

The build-up in inventories has dissipated

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 201070

80

90

100

110

120

130

140

150

160

-10

-5

0

5

10

15

20

25

30

35United States

Japan

Euro area


1. Business inventories/sales ratio, index (Jan. 1992=100).

2. Inventories/shipments ratio, mining and manufacturing, index (2005=100).

3. Stock of finished goods, net balance, relative to normal.

Source:Datastream; and OECD calculations.

14


15/23

Financial conditions have stabilised

OECD Financial Conditions Index1

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010-6

-4

-2

0

2

4

6

-6

-4

-2

0

2

4

6United States

Euro area

Japan


1. A unit decline in the index implies a tightening in financial conditions sufficient to produce an average reduction in the level ofGDP by 1/2 to 1% after four to six quarters. See details in Guichard, S., D. Haugh and D. Turner (2009), Quantifying the effect

of financial conditions in the Euro Area, Japan, United Kingdom and United States, OECD Economics Department WorkingPapers, No.677. Some components of the index are estimates for 2010 Q3.

Source: Datastream; and OECD calculations.

15


16/23

Bank credit default swap rates are volatile

Basis points

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2007 2008 2009 2010

0

100

200

300

400

500

600

700

0

100

200

300

400

500

600

700United States Euro area United Kingdom


Note: Banking sector five-year credit default swap rates for major banks. Last observation is 6 September 2010.

Source: Datastream; and OECD calculations.

16


17/23

Bank lending continues to be weak

Bank loans to the non-financial private sector, year-on-year percentage changes

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010-10

-5

0

5

10

15

-10

-5

0

5

10

15United States Euro area Japan


Note: Data refer to all commercial banks for the United States, to monetary financial institutions (MFIs) for the euro area and to allbanks for Japan. Year-on-year growth rates are calculated from end-of-period stocks. For the euro area, these are adjusted forreclassifications, exchange-rate variations and any other changes which do not arise from transactions.

Source: Datastream.

17


18/23

Underlying inflation remains low

12-month percentage change

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2007 2008 2009 2010

-1

0

1

2

3

4

5

-1

0

1

2

3

4

5Headline PCE deflator

PCE deflator excluding food and energy

United States

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2007 2008 2009 2010

-1

0

1

2

3

4

5

-1

0

1

2

3

4

5Headline HICP

HICP excluding food, energy, tobacco and alcohol

Euro area

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2007 2008 2009 2010

-3

-2

-1

0

1

2

3

-3

-2

-1

0

1

2

3Headline CPI

CPI excluding food and energy

Japan


Note: PCE deflator refers to the deflator of personal consumption expenditures, HICP to the harmonised index of consumer pricesand CPI to the consumer price index.

Source: OECD, Main Economic Indicators database; and Eurostat.

18


19/23

Inflation expectations are trending downwards in some countries

Based on bond yield differentials (Merrill Lynch), in per cent


2007 2008 2009 2010

-2

-1

0

1

2

3

4

5

-2

-1

0

1

2

3

4

5United States United Kingdom


2007 2008 2009 2010

-4

-3

-2

-1

0

1

2

3

-4

-3

-2

-1

0

1

2

3Japan Euro area


Note: Expected inflation implied by the yield differential between the ten-year government benchmark and inflation-indexed bonds.Last observation is 6 September 2010.

Source: Datastream.

19


20/23

Some emerging-market economies are facing inflationary pressuresConsumer price index, 12-month percentage change

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2007 2008 2009 2010

-2

0

2

4

6

8

10

12

14

16

18

-2

0

2

4

6

8

10

12

14

16

18Brazil Russia India China


Source:OECD, Main Economic Indicators database.

20


21/23

Monetary policy continues to be accommodating in major economies

Policy interest rates, in per cent

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

1

2

3

4

5

6

7

0

1

2

3

4

5

6

7United States

Japan

Euro area


Note:Last observation is 6 September 2010.

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

21


22/23

Central bank balance sheets remain enlarged

Central bank liabilities


2007 2008 2009 2010

500

1000

1500

2000

2500

3000

500

1000

1500

2000

2500

3000United States (bn $)

Japan (100 bn )

Euro area (bn euros)

United Kingdom (100 million )


Note:Last observation is 6 September 2010.

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

22


23/23

Public finances weakened significantly during the recession

General government balance, in per cent of GDP

IRL USA GBR ISL JPN SVK CZE CAN HUN NZL DEU FIN SWE KOR

GRC ESP PRT FRA POL BEL NLD ITA AUS AUT DNK NOR LUX CHE

-20

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

-20

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

2

4

6+ 2009

++

+ + +

+ +

++ + +

+ ++ + +

+ ++ +

+ + ++

+ ++

+

2007

Gross government debt, in per cent of GDP

JPN ISL BEL PRT USA DEU GBR NLD POL SWE NOR CHE NZL AUS

ITA GRC FRA HUN CAN IRL AUT ESP FIN DNK CZE SVK KOR

-50

0

50

100

150

200

-50

0

50

100

150

2002007 2009


Note: Data for 2009 are estimates for some countries.

1. Mainland Norway only.

2. Change between 2007 and 2009.

Source: OECD, System of National Accounts database; and OECD Economic Outlook 87 database.

23

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