OECD ECONOMIC OUTLOOK Moving forward in difficult times. 3 rd December Mauro Pisu OECD Senior Economist

Transcription

1 OECD ECONOMIC OUTLOOK Moving forward in difficult times 3 rd December 2015 Mauro Pisu OECD Senior Economist

2 Key issues Global trade weakness Harbinger of further slowing of global GDP growth? China s role at centre via commodity prices and global value chains Advanced economies resilient so far Investment disconnect Real investment continues to disappoint, especially in euro area and Italy Unemployment still high in much of the euro area and Italy Policy reconfiguration to support demand Monetary policy support still needed Resume momentum for structural reforms, especially financial sector and network services in Europe Take advantage of low interest rates to increase public infrastructure investment 2

3 8 6 Global GDP growth: modest projected upturn (given smooth slowdown in China and more robust investment in advanced economies) Y-oy % changes GDP World OECD Non-OECD Italy World average Y-oy % changes Real GDP Annual percentage changes World United states Euro Area Italy Japan China India Brazil Moving nominal GDP weights using purchasing power parities. 2. Fiscal years starting in April. Source: OECD Economic Outlook 98 database

4 Dramatic slowdown in global trade growth Such low rates historically occur with recessions Import volumes Global trade volumes and GDP Source: OECD Economic Outlook 98 database. 4

5 Weaker import growth in China is a key element of the broader trade slowdown Chinese import growth has slowed sharply China: Real GDP and import volumes This has exerted downward pressure on commodity prices Commodity price changes and China s share of global consumption Note: 2015 is change in the first three quarters vs Import volumes are deflated based on OECD estimates. Nominal imports during the first three quarters of 2015 were down 8 per cent. Sources: OECD Economic Outlook 98 database. Note: Commodities shown are aluminium, coal, copper, iron ore, lead, natural gas, nickel, oil, uranium and zinc. Sources: IMF; BP Statistical Review of World Energy; World Bureau of Metal Statistics. 5

6 Services have been growing faster than manufacturing, associated with more consumption Rebalancing is happening in China, but its pace is uncertain Manufacturing and services growth GDP forecasts for China and number of forecasters But forecasters are unsure about the true underlying pace of GDP growth Sources: Chinese National Bureau of Statistics; Bloomberg. 6

7 Weaker Chinese import growth helps explain slowdowns among other EMEs Change in GDP growth Y-o-y growth in 2015 Q2 compared to y-o-y growth in 2014 Q2 Sharpest slowdowns in countries with close trade links to China and/or dependent on commodities Note: For Korea, 2015 Q3 compared to 2014 Q3. Intensive trade with China is where merchandise exports to China were above 2% of GDP in Sources: OECD National Accounts database; IMF; UNCTAD. 7

8 As a group, advanced economies have so far been resilient to EME weakness Revisions to OECD Economic Outlook projections between June and November 2015 GDP projections for OECD economies changed little compared to BRIICS Although OECD export growth has been revised down sharply Sources: OECD June and November 2015 Economic Outlook databases. 8

9 Unemployment is decreasing and should yield healthier wage growth, but haven t yet % Italy United States Japan OECD Euro Area Unemployment rate Compensation per employee % changes OECD United States Japan Euro Area Italy 0.5 Source: Economic Outlook 98 database. 9

10 Italy: the cyclical recovery driven by labour market gains Lower unemployment being accompanied by higher employment Y-o-Y % % changes 2.0 Employment Unemployment rate Source: Economic Outlook 98 database

11 Italy: Large slack is mitigating inflationary pressures Y-o-Y % change Price inflation Wage inflation Output gap % Source: Economic Outlook 98 database

12 Euro area and Italy growth hampered by weak investment; credit recovering but still tight Q = Investment remains low¹ Credit flows show signs of slow recovery² Y-o-y % change 8 France Germany Italy Spain Real total gross fixed capital formation. 2. Loans to non-financial corporations adjusted for sales and securitisation. Source : OECD Economic Outlook 98 database and European Central Bank. 12

13 Real investment is weak, especially in Italy Index 2008q1= United States Euro Area OECD commodity exporters Real fixed investment Japan Italy Projected improvement assumes favourable structural and demand policy settings 1. OECD commodity exporters includes Australia, Canada, Chile, Mexico and Norway. Source: OECD Economic Outlook 98 database. 13

14 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Italy: bank lending growth to enterprises especially weak, still Y-o-y % changes 8 6 Loans to domestic non-financial enterprises Loans to households Total Source: Banca d'italia, statistical database. 14

15 The credit channel is impaired by high nonperforming loans Deleveraging proceeded faster and further in the United States than in the euro area; level of private debt not high in Italy Non-performing loans are high and still rising in some countries Combined debt of households and non-financial corporations Source: Eurostat; OECD Main Statistical Database; OECD National Accounts Database % of total Non-performing loans 1 Germany Spain France Italy Gross non-performing debt instruments as a percentage of total debt instruments. Source: European Central Bank. 15

16 Monetary policy support is required to reach inflation targets Core inflation is not projected to reach central bank target levels within 2 years in any major advanced economy %, y -o-y Core inflation Italy United States Euro area %, y -o-y Note: Consumer prices excluding food and energy. The private consumption deflator is used for the United States. For Japan, excludes the estimated impact of the consumption tax increases in April 2014 and April Source: OECD Economic Outlook 98 database Accompanying structural reforms needed so as to improve credit channel (euro area and Italy) and to promote resource reallocation (Japan) 16

17 Collective action on public investment could support growth without worsening debt ratios 1 st year effects of a ½ per cent of GDP public investment stimulus by all OECD economies Change from baseline Collective action, quality projects, and structural policy efforts are required to realise these gains Note: Simulation using the NiGEM model, based on a two-year increase in the level of government investment equivalent to ½ per cent of GDP per annum in all OECD countries. The euro area figures are a weighted average of Germany, France and Italy. Source: OECD calculations. 17

18 Structural factors holding Italy back Italy: labour market participation is structurally low, especially for women Men % France Germany 88 Italy United Kingdom OECD Labour force participation rate France Italy OECD Women Germany United Kingdom % Source: OECD Economic Outlook 98 database. 18

19 Structural factors holding Italy back Italy: Skill mismatches hold back productivity and wage growth Potential gains from reducing skill mismatch Percentage of workers with skill mismatch (LHS) Gains to labour productivity from reducing skill mismatch (RHS) POL CAN BEL SWE USA FRA NLD DNK JPN FIN EST KOR GBR NOR SVK AUS DEU AUT IRL CZE ESP ITA 0 Note: The figure shows the percentage of workers who are either over- or under- skilled and the simulated gains to allocative efficiency rom reducing skill mismatch in each country to the best practice level of mismatch. The figures are based on OECD calculations using OECD Survey of Adult Skills (2012). Source: M. Adalet McGowan and D. Andrews (2015), "Labour Market Mismatch and Labour Productivity: Evidence from PIAAC Data" OECD Economics Department Working Paper No

20 Structural factors holding Italy back Skill matching affected by structural policies and business environment Framework policies can reduce skill mismatch Note: The dot is the average probability to have mismatch evaluated at the median level of the policy and individual characteristics. The distance between the Min/Max of the relevant policy indicator and the median is the change in the probability of skill mismatch with the respective policy change. Source: M. Adalet McGowan and D. Andrews (2015), "Labour Market Mismatch and Labour Productivity: Evidence from PIAAC Data" OECD Economics Department Working Paper No

21 Structural factors holding Italy back Innovation and Diffusion Investment is a key support Solid growth at the global productivity frontier but spillovers disappoint Labour productivity; index 2001=0 Source: Andrews, D. C. Criscuolo and P. Gal (2015), Frontier firms, technology diffusion and public policy: micro evidence from OECD countries forthcoming OECD Working Paper.

22 Structural factors holding Italy back Italy: economic environment hinder the diffusion of innovation Estimated frontier spillover (% p.a.) associated with a 2 percentage point increase in MFP growth at the global productivity frontier Globalisation Reallocation Knowledge-Based Capital Source: Saia, A., D. Andrews and S. Albrizio (2015), Public Policy and Spillovers From the Global Productivity Frontier: Industry Level Evidence, OECD Economics Department Working Papers, forthcoming.

23 Structural factors holding Italy back Italy: Returns to education are low negative feedback loop between education, skills, growth

24 Structural factors holding Italy back Italy: barriers to competition have been reduced Changes in the strictness of regulatory barriers to competition Average OECD indicator of product market regulation, overall index and three main sub-components Product market regulation OECD Italy OECD Italy OECD Italy OECD Italy State control Barriers to entrepreneurship Barriers to trade and investment Source: OECD calculations. 24

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26 Structural factors holding Italy back call for more efficient public administration Conflict resolution in courts is too slow and expensive Trial length in days, first instance 600 Italy Slovenia Netherlands England and Wales Slovak Republic New Zealand Norway Finland Korea France Hungary OECD Estonia Austria Denmark Turkey Japan Total cost of trial net of legal aid (as a percentage of the value of the claim) Source: World Bank, Doing Business (database); and Palumbo, G. et al. (2013), Judicial Performance and its Determinants: A Cross-Country Perspective, OECD Economic Policy Papers, No. 5, OECD Publishing, Paris,

27 Summary Despite recent weakness, global trade and GDP are expected to recover in The projections assume effective policies and collective action reflected in revived investment and wage growth Structural reform efforts need to be revived to support monetary and fiscal efforts Infrastructure spending, including for climate change mitigation, could help in the short as well as the long term 27

28 Summary The near-term outlook for Italy is better than the recent past Cyclical recovery driven by the labour market reform and reviving labour market but structural problems remain: low labour market participation rate, chronically low investment, non-perfoming loans, inefficient public administration, skills and education contributing to low productivity growth Need continue on the path of structural reforms the government has taken avanti tutta con le riforme! 28

29 Back up 29

30 Tackling climate change is a long-term challenge but must be more ambitious now Source: IPCC. 30

31 Collective action is needed, but advanced economies have lost momentum Global new investment in renewable energy Note: New investment volume adjusts for re-invested equity. Total values include estimates for undisclosed deals. Developed volumes are based on OECD countries excluding Mexico, Chile and Turkey. Sources: Bloomberg New Energy Finance; UNEP; Frankfurt School for Climate & Sustainable Energy Finance. 31