OECD INTERIM GLOBAL ECONOMIC ASSESSMENT Tailwinds driving a modest acceleration... but storm clouds on the horizon? Paris, 18 th March 2015 11h00 Paris time Catherine L. Mann OECD Chief Economist http://www.oecd.org/economy/economicoutlook.htm
Key messages Positive surprises support somewhat better growth prospects • Stronger incoming data • Lower oil prices • Easing by ECB and other central banks Inconsistent real and financial signals point to risks • Abnormally low inflation and interest rates • Rapid moves in exchange rates and asset prices • Still lagging real investment and employment Policy implications: Balanced policy packages needed • Implement stable medium-term fiscal path • Reinvigorate structural policies appropriate to each economy • Reduce over-reliance on monetary policy 2
Growth prospects have improved slightly compared to a few months ago GDP growth 1 Volume, per cent 5 5 November 2014 Outlook forecasts March Interim Outlook forecasts 4 4 3 3 2 2 1 1 0 0 1. Economies representing over 70% of global GDP measured at 2013 PPP exchange rates . Source: November 2014 OECD Economic Outlook database; OECD National Accounts database; and OECD calculations. 3
The oil price drop is positive for global growth Brent crude price Impact of fall in oil price between 2014 and USD per barrel 2015 on trade balance 1 Billions of US dollars 120 120 600 600 110 110 100 100 400 400 90 90 200 200 80 80 0 0 70 70 $85 per barrel = November -200 -200 60 60 2014 Outlook assumption -400 -400 50 50 40 40 -600 -600 1. Assumed average oil price (Brent) of $57 per barrel in 2015. Source: Datastream; ICIC Pricing; OECD November 2014 Economic Outlook database; and OECD calculations 4
Many central banks have eased monetary policy Timeline of easing decisions since December 2014 ← December 2014 Morocco Norway Iceland Switzerland Euro area Denmark Peru Turkey Canada Uzbekistan Pakistan Denmark Singapore India Denmark Romania Switzerland Egypt January 2015 → China China Australia Turkey Israel Indonesia Denmark Romania Sweden Botswana ← February 2015 India Central banks of countries Poland Thailand Korea Serbia accounting for about 48% of global GDP have eased March 2015 → over the past 3 months Note: size of bubbles indicates relative GDP (at PPP). Russia, which raised policy rates sharply in December before cutting twice since, is not included as an easer over this period. 5
The ECB’s action is working through financial markets Nominal effective exchange rate Yield curves Index, Jan 2014 = 100 Instantaneous forward rates 102 102 4.0 4.0 100 100 3.5 3.5 March 2014 98 98 3.0 3.0 November 96 96 2.5 2.5 2014 Depreciation 94 94 2.0 2.0 1.5 1.5 92 92 March 2015 1.0 1.0 90 90 Announcement of 0.5 0.5 88 88 expansion of the asset purchase 0.0 0.0 86 86 -0.5 -0.5 84 84 1 2 3 4 5 6 7 8 9 10 Years Source: ECB; Bank of England; Datastream . 6
Interim Outlook – small upward revisions, still only moderate growth Real GDP 1 Percentage change 2015 2016 2014 March 2015 difference from March 2015 difference2from Column1 Column2 Interim November Interim November Forecasts Outlook Forecasts2 Outlook United States 2.4 3.1 0.0 3.0 0.0 Euro area 0.9 1.4 0.3 2.0 0.3 Japan 0.0 1.0 0.2 1.4 0.4 Germany 1.6 1.7 0.6 2.2 0.4 France 0.4 1.1 0.3 1.7 0.2 Italy -0.4 0.6 0.4 1.3 0.3 United Kingdom 2.6 2.6 -0.1 2.5 0.0 Canada 2.5 2.2 -0.4 2.1 -0.3 China 7.4 7.0 -0.1 6.9 0.0 India 7.3 7.7 1.3 8.0 1.4 Brazil 0.0 -0.5 -2.0 1.2 -0.8 Aggregate 2 3.7 4.0 0.1 4.3 0.2 GDP at market prices adjusted for working days. In the case of Germany, this differs from the “headline” 1. measure, which does not include the working day adjustment. The unadjusted number for Germany would be higher by 0.2 percentage points in 2015 and by 0.1 percentage point in 2016. 2. Economies representing over 70% of global GDP measured at 2013 PPP exchange rates. 7
A welcome fall in unemployment, but low employment rates suggest that slack remains Real wage and labour productivity Employment and unemployment rates G7 countries, per cent G7 countries, average growth rates, per cent 1.6 1.6 9 60 Unemployment rate (left scale) Real wage growth Labour productivity growth Employment rate (right scale) 1.4 1.4 8 59 1.2 1.2 1.0 1.0 7 58 0.8 0.8 6 57 0.6 0.6 0.4 0.4 5 56 0.2 0.2 4 55 0.0 0.0 2000Q2-2009Q4 2010Q1-2014Q4 Source: OECD National Accounts database; OECD Main Economic Indicators database; and OECD calculations . 8
United States – continued cyclical recovery, despite weather Estimated effect of lower energy prices on share of energy in household spending 6 6 Households save approx. Cyclical recovery continues, though $90/month on energy 5 5 one-offs (e.g. severe winter weather) 4 4 may mask underlying strength 3 3 2 2 Absent brinksmanship, fiscal policy is 1 1 expected to remain neutral 0 0 2014 2015 Source: Bureau of Economic Analysis; and OECD calculations. Federal Reserve likely to delay first Nominal effective exchange rate interest rate increase due to low Trade weighted, broad currency index 2010 = 100 inflation and dollar appreciation 115 115 110 110 Domestic demand growing faster than output – the United States is adding to 105 105 demand in the rest of the world 100 100 95 95 90 90 Source: US Federal Reserve. 9
Euro area – tailwinds offer escape from stagnation Retail trade PMI 3-month moving average volume index, 2010=100 New Orders/Incoming New Business 101 101 60 60 100 100 Values above 50 55 55 indicate expansion 99 99 50 50 98 98 45 45 97 97 40 40 96 96 Share prices Mortgage rates Euro Stoxx 50 index, Jan 2011=100 Per cent 5.0 5.0 140 140 Average Difference between max. and min. 130 130 4.5 4.5 120 120 4.0 4.0 110 110 3.5 3.5 100 100 90 90 3.0 3.0 80 80 2.5 2.5 70 70 60 60 2.0 2.0 10 Source: ECB; Eurostat; Markit; Datastream .
Euro area – fiscal policy needs to complement monetary and structural policies Stable, medium-term fiscal path needed to support demand Change in underlying primary balance % of potential GDP Ad hoc extensions of deadlines (12 5 5 since 2009) create uncertainty, and 4 4 reduce fiscal multipliers, thus 3 3 undermining objective of the extension 2 2 1 1 0 0 -1 -1 2007-2009 2009-2011 -2 -2 Complexity of rules may lead to poor -3 -3 2011-2013 2013-2015 policy decisions, and ‘gamesmanship’’ -4 -4 -5 -5 Euro area Source: OECD November 2014 Economic Outlook database. 11
The Juncker Plan could spur demand and supply, as well as promote structural improvements Electricity prices for industrial users Index EU average = 100; 2012 or latest available 140 180 The Juncker Plan helps complete 160 120 the Single Market, especially in 140 100 120 network industries 100 80 80 60 60 Reducing regulatory differences 40 40 by one fifth could increase cross- Public investment border FDI in the EU by up to 25% Volume index, 2009 = 100 and trade intensity by up to 15% 160 160 Germany United Kingdom France Spain 140 140 Greece Portugal 120 120 Spillovers from collective action 100 100 enhance the growth impact of 80 80 investment 60 60 40 40 20 20 12 Sources: IEA; OECD National Accounts database.
Japan – getting growth and inflation back on track, and staying there Labour productivity growth Per cent 8 8 6 6 Low oil prices and the latest 4 4 monetary and fiscal stimulus 2 2 provide a welcome impetus for 0 0 near-term growth -2 -2 -4 -4 -6 -6 Implementation of structural policies (the “third arrow”) is critical Public debts and deficits Per cent of GDP to raise productivity and growth 20 240 Overall budget deficit (left scale) Government gross liabilities (right scale) 15 180 The scale of the challenge of 10 120 reducing the public debt burden remains exceptionally large 5 60 0 0 Source: OECD National Accounts database. 13
China – growth slowing gradually to the official target of around 7% Gap between floor space started Real property price and sold Index 2010=100 Millions of square meters 80 105 Lower oil prices and policy stimulus 100 70 are counterbalancing factors weighing 95 60 90 on growth, notably weakness in the 50 85 40 real estate and financial sectors 80 30 75 20 70 10 65 0 60 Slowing domestic demand creates tension between meeting growth Real total domestic expenditure targets and rebalancing the economy Year-on-year percentage change, 3-quarter moving average 11 11 10 10 9 9 8 8 Service sector liberalisation would 7 7 unleash a new growth drive 6 6 5 5 4 4 Sources: CEIC; and OECD National Accounts database. 14
India – now leading the growth pack, but facing numerous challenges The improvement partly reflects data revisions. The underlying acceleration is slower, with sluggish investment and exports and emerging obstacles to structural reforms. GDP, exports and investment Volume, 4-quarter moving average, year-on-year percentage change 30 30 GDP (new series) GDP (old series) 25 25 Gross fixed capital formation Exports of goods and services 20 20 15 15 10 10 5 5 0 0 -5 -5 -10 -10 -15 -15 -20 -20 Source: Indian Central Statistics Office; and OECD calculations. 15
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