8/8/2019 OECD's Interim Assessment
1/23
Whatistheeconomicoutlook
forOECDcountries?
Aninterimassessment
Paris,9thSeptember2010
11hParistime
PierCarlo
Padoan
OECDChiefEconomistandDeputySecretaryGeneral
8/8/2019 OECD's Interim Assessment
2/23
8/8/2019 OECD's Interim Assessment
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
8/8/2019 OECD's Interim Assessment
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
8/8/2019 OECD's Interim Assessment
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.xls8/8/2019 OECD's Interim Assessment
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
8/8/2019 OECD's Interim Assessment
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
Click here for underlying data
Note:Data for China are OECD estimates.
Source: Datastream.
7
http://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xls8/8/2019 OECD's Interim Assessment
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
8/8/2019 OECD's Interim Assessment
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
Click here for underlying data
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.xls8/8/2019 OECD's Interim Assessment
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
Click here for underlying data
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
http://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xls8/8/2019 OECD's Interim Assessment
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
Click here for underlying data
Source: OECD, Main Economic Indicators database.
11
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.xls8/8/2019 OECD's Interim Assessment
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
Click here for underlying data
Source: OECD, Quarterly National Accounts database.
12
http://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xls8/8/2019 OECD's Interim Assessment
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
Click here for underlying data
Note:Seasonally adjusted series.
Source:Bureau of Economic Analysis; Eurostat; and Datastream.
13
http://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xls8/8/2019 OECD's Interim Assessment
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
Click here for underlying data
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
http://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xls8/8/2019 OECD's Interim Assessment
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
Click here for underlying data
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
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.xls8/8/2019 OECD's Interim Assessment
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
Click here for underlying data
Note: Banking sector five-year credit default swap rates for major banks. Last observation is 6 September 2010.
Source: Datastream; and OECD calculations.
16
http://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xls8/8/2019 OECD's Interim Assessment
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
Click here for underlying data
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
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.xls8/8/2019 OECD's Interim Assessment
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
Click here for underlying data
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
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.xls8/8/2019 OECD's Interim Assessment
19/23
Inflation expectations are trending downwards in some countries
Based on bond yield differentials (Merrill Lynch), in per cent
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2007 2008 2009 2010
-2
-1
0
1
2
3
4
5
-2
-1
0
1
2
3
4
5United States United Kingdom
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2007 2008 2009 2010
-4
-3
-2
-1
0
1
2
3
-4
-3
-2
-1
0
1
2
3Japan Euro area
Click here for underlying data
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
http://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xls8/8/2019 OECD's Interim Assessment
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
Click here for underlying data
Source:OECD, Main Economic Indicators database.
20
http://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xls8/8/2019 OECD's Interim Assessment
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
Click here for underlying data
Note:Last observation is 6 September 2010.
Source: Federal Reserve; Bank of Japan; and European Central Bank.
21
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.xls8/8/2019 OECD's Interim Assessment
22/23
Central bank balance sheets remain enlarged
Central bank liabilities
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
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 )
Click here for underlying data
Note:Last observation is 6 September 2010.
Source: Federal Reserve; Bank of Japan; European Central Bank; and Bank of England.
22
http://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xlshttp://www.oecd.org/dataoecd/21/14/45965929.xls8/8/2019 OECD's Interim Assessment
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
Click here for underlying data
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
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