OECD Interim Global Economic Assessment.

OECD Interim Global Economic Assessment.

 A moderate expansion is underway in most major advanced and emerging economies, but growth remains weak in the euro area, which runs the risk of prolonged stagnation if further steps are not taken to ...Show more.

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15th September 2014, Paris Rintaro Tamaki, Deputy Secretary-General & Acting Chief Economist OECD INTERIM GLOBAL ECONOMIC ASSESSMENT http://www.oecd.org/economy/economicoutlook.htm
Global growth, though bumpy, continues at a moderate pace 2 World GDP Percentage change, seasonally adjusted annualised rate Source: OECD National Accounts database. Global PMI Index Note: Values above 50 indicate expansion. Source: Markit. 0 1 2 3 4 5 0 1 2 3 4 5 48 50 52 54 56 58 48 50 52 54 56 58.

Trade growth remains sluggish Volumes, year-on-year percentage change Global trade in goods and services Source: OECD National Accounts database. 3 -20 -15 -10 -5 0 5 10 15 20 -20 -15 -10 -5 0 5 10 15 20 Pre-crisis average (1990-2007)

Labour market slack is still substantial in the advanced economies OECD employment Per cent of working age population Real wages and labour productivity Annualised percentage change, Q2 2009 – Q1 2014 4 Note: Real wage is employee compensation divided by total hours worked in the economy, deflated by the CPI. Labour productivity is real GDP divided by hours worked. Source: OECD calculations based on quarterly national accounts and OECD May 2014 Economic Outlook database . Source: OECD May 2014 Economic Outlook database . 53 54 55 56 57 53 54 55 56 57 -0.5 0.0 0.5 1.0 1.5 -0.5 0.0 0.5 1.0 1.5 United States Japan Euro area Real wage Labour productivity.

There are signs of a stabilisation of growth rates in emerging market economies 5 GDP growth and Composite PMI -6 -4 -2 0 2 4 6 8 10 12 14 40 42 44 46 48 50 52 54 56 58 60 Per cent Index Emerging Markets PMI (LHS) BRIICS GDP growth (s.a.a.r.; RHS) Note: PMI values above 50 indicate expansion. Source: HSBC; Markit; OECD National Accounts database; and OECD calculations.

OECD interim forecasts -- GDP growth in the major economies 6 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 China India Brazil Per cent Per cent 2013 2014 2015 Source: OECD Interim Forecast. -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 United States Euro area Japan Per cent Per cent 2013 2014 2015

GDP growth Per cent 7 OECD interim forecasts Note: GDP at market value adjusted for working days. For Germany and India, this measure may differ from national headline measures. 

Column1201320142015United States2.22.13.1Euro area-0.40.81.1Japan1.60.91.1Germany 0.21.51.5France0.40.41.0Italy-1.8-0.40.1United Kingdom1. 83.12. Canada2.02.32.7 China7.77.47.3 India4.75.75.9Brazil2.50.31.4

The bullishness of financial markets belies the presence of substantial risks . Share prices Indices, Jan 2005 = 100 Implied share price volatility Per cent 8 Note: Series shown are the MSCI World and Emerging.

 Markets indices. The MSCI World Index covers 23 developed markets and the MSCI Emerging Markets Index 23 emerging markets. Source: Datastream. Source: Datastream. 0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100 United States: VIX index Euro area: VSTOXX index 0 50 100 150 200 250 0 50 100 150 200 250 Developed markets Emerging markets.

In the euro area, projected growth is too weak to reduce economic slack Output gap Per cent of potential output . 9 Source: OECD May 2014 Economic Outlook; OECD Interim Forecasts, and OECD calculations. -4 -3 -2 -1 0 -4 -3 -2 -1 0 2012 2013 2014 2015

The OECD does not project euro area deflation, but the risk has risen Consumer price inflation Year-on-year, per cent 10 Source: Eurostat. -4 -3 -2 -1 0 1 2 3 4 5 -4 -3 -2 -1 0 1 2 3 4 5 Euro area Germany.

France Italy Spain Greece

Global policy requirements . Ease structural constraints to economic growth Tailor monetary policy to country-specific circumstances, which are diverging Ensure that public debt burdens are sustainable – for many countries, that means further fiscal consolidation 11

The euro area needs more monetary support . Recent ECB action is welcome, but further measures, including QE, are warranted Use all flexibility allowed under the union’s fiscal rules The completion of the banking union and the effective and credible assessment of banks are both critical 12 Other major central banks have eased more aggressively Central bank assets as per cent of GDP 0 10 20 30 40 50 60 0 10 20 30 40 50 60 United States Euro area Japan Source: Datastream.

Japan’s multi-pronged approach should be maintained . Continue monetary expansion to achieve the 2% inflation target Follow through on second consumption tax hike to advance fiscal consolidation; use short-term measures, particularly further monetary expansion, to cushion negative effects Legislate and implement announced structural reform Wages are now picking up Hourly earnings index, 2010 = 100 13 98 99 100 101 102 103 98 99 100 101 102 103 Source: OECD Main Economic Indicators.

US policy stimulus is working . Proceed with the intended withdrawal of monetary stimulus Focus fiscal policy on medium-/ long-term sustainability Use structural policies to pursue more inclusive growth, and increase public investment 14 Nonfarm payroll growth is around pre-crisis levels Thousands, 3-month moving average -800 -600 -400 -200 0 200 400 -800 -600 -400 -200 0 200 400 Pre-crisis average (2004-2007) Source: U.S. Bureau of Labor Statistics.

China faces challenges in achieving an orderly slowdown . Ensuring an orderly real estate market correction is critical Easing inflation provides ample room for policy stimulus if needed Further efforts to make financial regulation more effective are needed 15 Credit growth is being reined in Year on year, per cent Note: Non-bank credit includes bankers acceptances, trust loans, entrusted loans and net corporate bond financing. Source: CEIC. 0 15 30 45 60 75 10 14 18 22 26 30 Total social financing (LHS) Bank lending (LHS) Non-bank credit (RHS)

India has the opportunity to achieve faster and more inclusive growth . Improve fiscal consolidation by shifting from subsidies to investment in social and physical infrastructure Control inflation and improve financial stability Improve infrastructure, simplify labour laws and pursue tax reform Growth has bottomed out Real GDP, year-on-year percentage change 16 0 2 4 6 8 10 12 14 0 2 4 6 8 10 12 14 Source: OECD National Accounts database.

Brazil needs to revive investment . Ensure inflation returns to the inflation target. Increase the primary surplus as the economy recovers. Pursue reforms that support investment, including tax simplification, accelerated infrastructure spending and lower trade barriers. Investment is weak Investment volumes, year-on-year percentage change 17 Source: Instituto Brasileiro de Geografia e Estatística. -20 -10 0 10 20 30 40 -20 -10 0 10 20 30 40

Key messages The moderate economic expansion is forecast to continue in most major advanced and emerging economies The euro area stands out as suffering from weak demand and risking prolonged stagnation Macroeconomic policy needs across countries are diverging Structural reforms are key to achieving more satisfactory global growth rates 18.

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