GLOBAL ECONOMIC OUTLOOK Véronique SALINS, ECO/MPD 25 March 2019
Summary • Growth is weakening, especially in Europe – Business sentiment is moderating – Tariffs and policy uncertainties are weighing on trade growth – Financial market conditions have improved – Labour markets have improved and support domestic demand but wages and inflation remain surprisingly modest • Downside risks are more prominent: vulnerabilities in China, Europe and financial markets could weaken growth further • Weaker long term growth prospects call for more ambitious structural reform efforts
Global growth is slowing with further signs of decoupling World GDP growth Annual GDP growth % % y-o-y 4.5 3.5 3 4.0 2.5 3.5 2 1.5 3.0 1 2.5 0.5 0 2.0 2016 2017 2018 2015 2016 2017 2018 2018Q4 Q1 Q1 Q1 Quarterly Year-on-Year USA Euro area Japan Source: OECD Main indicators database, Thomson Reuters and OECD calculations.
Industrial production and retail sales are easing Industrial production Retail sales volume % changes, a.r. % changes, a.r. 7 6 6 5 5 4 4 3 3 2 2 1 1 0 0 2014Q1 2015Q1 2016Q1 2017Q1 2018Q1 2014Q1 2015Q1 2016Q1 2017Q1 2018Q1 Quarterly Year-on-Year Quarterly Year-on-Year Source: OECD Main indicators database, Thomson Reuters and OECD calculations.
Global trade has slowed down amid rising trade policy uncertainty Global Trade Growth Trade policy uncertainty Normalized, % changes, a.r. 3 mma 8 3 7 2.5 6 2 5 1.5 4 1 3 0.5 2 0 1 -0.5 0 2014 2015 2016 2017 2018 -1 -1 -2 -1.5 2015m2 2015m8 2016m2 2016m8 2017m2 2017m8 2018m2 2018m8 2019m2 Quarterly Year-on-Year United States Japan Note: The series in the RHS chart are derived from newspaper coverage of trade policy uncertainty in the countries shown. Source: OECD Economic Outlook Database; policyuncertainty.com ; and OECD calculations.
Business survey indicators continue to moderate especially in the advanced economies Manufacturing new export orders Composite PMI Normalized, 3 Normalized, 3- month moving month moving average average 3 2 1.5 2 1 1 0.5 0 0 -0.5 -1 -1 -2 -1.5 -3 -2 2015M2 2016M2 2017M2 2018M2 2019M2 2015M2 2016M2 2017M2 2018M2 2019M2 AEs EMEs Aes EMEs Source: OECD Main indicators database, Thomson Reuters, Markit and OECD calculations.
Real GDP growth has been revised down OECD March 2019 Interim Economic Outlook Projections Year-on-year, %. Arrows indicate the direction of revisions since November 2018. Note: Difference in percentage points based on rounded figures. Dark red for downward revisions of 0.6 percentage points and more. Dark green and dark orange for, respectively, upward and downward revisions of 0.3 percentage points and more but less than 0.6 percentage points. Light green and light orange for, respectively, upward and downward revisions of less than 0.3 percentage points. The European Union is a full member of the G20, but the G20 aggregate only includes countries that are also members in their own right. 1. Fiscal years starting in April.
Financial market conditions have improved following recent declines in long-term bond yields Equity prices 10-year government bond yields January 2016=100 3.5 160 USA EA DEU JPN UK 3 150 2.5 140 2 130 1.5 120 1 110 0.5 100 0 90 USA Euro Area China -0.5 80 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Source: Thomson Reuters. Note: data up to March 2019. Stock market indices are the S&P500, FTSE Eurotop 100, Nikkei 225 and Shanghai Composite.
OECD-wide unemployment has fallen below its pre- crisis level and wages are slowly picking up Nominal wage growth Unemployment rate % Y-o-y % changes 14 3.5 12 3 10 2.5 8 2 6 1.5 4 1 2 0.5 0 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2015Q4 2016Q2 2016Q4 2017Q2 2017Q4 2018Q2 2018Q4 United States Euro area Japan United States Euro Area Japan Source: OECD Short-term labor statistics; OECD Economic Outlook database; and OECD calculations.
Commodity prices have been volatile Brent oil prices Non-oil commodity prices Index 2015=100 USD 2.5 140 Metals and minerals 2.3 Food 120 2.1 Agricultural raw materials 1.9 100 1.7 1.5 80 1.3 60 1.1 0.9 40 0.7 20 0.5 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Note: Data up to March 21, 2019 for the LHS figure, up to February 2019 for the RHS figure. Source: OECD Main Indicators Database, Thomson Reuters and OECD calculations.
But with moderate wage pressure core inflation remains subdued Annual headline and core consumer price inflation G7 economies % 2.5 2.0 1.5 1.0 0.5 0.0 2014 2015 2016 2017 2018 2019 Core Headline Source: OECD main Indicators database, and OECD calculations.
The UK economy has weakened since the referendum and a disruptive Brexit would have sizeable short term costs UK GDP relative to staying in the EU Investment has declined %, difference from baseline Index 2016Q2 = 100 2018 2020 2022 109 0 United Kingdom OECD 108 -0.5 107 106 -1 105 -1.5 104 -2 103 102 -2.5 101 -3 100 99 -3.5 2016 2017 2018 Estimates in the RHS figure are simulations using the NiGEM and METRO global models under the assumption of trade on a WTO basis between the UK and the EU27 from 2019-2023. Taken from OECD Economic Policy Paper no.16 (2016).
Slower credit growth or higher bond yields would weaken the euro area further Credit growth Sovereign bond yields Bank credit to non-financial corporations 10-year government bond yield Germany France Italy Spain % Italy Germany France Spain % y-o-y 8 7.5 7 5.0 6 2.5 5 0.0 4 -2.5 3 -5.0 2 -7.5 1 -10.0 0 -12.5 -1 2010 2012 2014 2016 2018 2019 2010 2012 2014 2016 2018 2019 13 Source: Thomson Reuters and OECD calculations .
Financial pressure on EMEs has eased, but China and East Asia are still experiencing a trade slow down EME sovereign bond yield spreads have New export orders declined Manufacturing Index 2015-19 average = 100 Turkey Argentina Global EMEs % pts % pts 115 9 9 China East Asia 8 8 110 7 7 105 6 6 100 5 5 95 4 4 90 3 3 2 2 85 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Mar-19 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Feb-19 Source: OECD Main indicators database, Thomson Reuters and OECD calculations.
Additional US-China trade shocks would have global effects, especially if uncertainty rose further Impact of new tariffs imposed on US-China bilateral trade and higher uncertainty % change in level of GDP from baseline in 2021 CHN USA World MEX East Asia CAN ROW JPN Euro 0 -0.25 -0.5 -0.75 -1 -1.25 Trade shocks only Trade shocks plus uncertainty -1.5 Trade shock is bilateral tariffs of 25% on all US-China trade by the end of 2019. Additional uncertainty shock based on a 50bp rise in global investment risk premia for three years, slowly fading thereafter. OECD estimates using NiGEM model.
A slow down in China would weight on growth across the world GDP impact of a negative demand shock of 2% pts in China %, difference from baseline in the first year Trade Uncertainty % 0.0 -0.1 -0.2 -0.3 -0.4 -0.5 -0.6 United States Euro area Germany Japan Commodity East Asia World exporters Simulated impact on NiGEM model of a two-year decline of 2 percentage points per annum in domestic demand growth in China and a rise of 50 basis points in investment risk premia in all economies. The blue bars show the contribution from the direct slowdown in trade; the green bars show the additional contribution from adding higher uncertainty. Commodity exporters include Argentina, Brazil, Chile, Indonesia, Russia, South Africa and other non-OECD oil-producing economies. East Asia includes Korea and the Dynamic Asian Economies.
Medium-term growth have weakened calling for structural reforms ambitions to be revived Potential output growth Average annual GDP growth expected over next decade 8 7 World Advanced economies EMEs World Advanced economies EMEs 7 6 6 5 5 4 4 3 3 2 2 1 0 1 2001 2006 2011 2016 2018 2001 2006 2011 2016 2018 Note : Based on OECD estimates of potential output growth for 46 economies (LHS chart) and consensus forecasts in April for 2001 to 2016, and October 2018 (RHS chart). The countries covered account for around 84% (LHS chart) and 88% (RHS chart) of global GDP in PPP terms. Source : OECD Economic Outlook 104 database; Consensus Economics; and OECD calculations.
ANNEX
The value of US trade in cars and car parts is sizeable US merchandises imports in 2017 and tariffs USD, billion announcements 2380 50 Implemented tariffs Note: Peterson Institute for International Economics; US International Trade Administration; and OECD calculations.
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