Interim Economic Assessment

Transcription

1 Interim Ecnmic Assessment September Mderate glbal grwth is set t cntinue, but weak demand in the eur area remains a cncern The glbal ecnmy is cntinuing t expand at a mderate and uneven pace. The tepid rate f grwth means that a substantial degree f labur market slack remains, especially in the eur area, and wrld trade grwth remains sluggish. Glbal grwth shuld be smewhat mre vigrus in the secnd half f and int given cntinued plicy supprt, favurable financial cnditins and grwing cnfidence, alngside rising emplyment. There is a grwing degree f divergence between the majr ecnmies. The recvery in the United States is slid, grwth is arund trend in Japan and China, and strengthening in India after the recent weak patch. By cntrast, grwth in the eur area lks set t remain subdued in the near term and Brazil is expected t make nly a slw recvery frm recessin. OECD Interim Ecnmic Frecasts Clumn United States... Eur area Japan.6.9. Germany... France... Italy United Kingdm.8..8 Canada...7 China India Brazil... Nte: GDP at market value adjusted fr wrking days. Fr Germany and India, this measure may shw different grwth rates frm natinal headline measures. The fact that majr ecnmies psitins in the ecnmic cycle are becming less synchrnised is reflected in diverging macrecnmic plicy requirements. Nnetheless, it remains true that mnetary cnditins ught t remain supprtive in all the majr advanced ecnmies, while mst cuntries need t make further prgress n fiscal cnslidatin t ensure that debt burdens remain sustainable. T raise grwth sustainably, sme cuntries are grasping structural refrm pprtunities and must ensure effective implementatin, while thers need t be mre ambitius in measures t bst cmpetitin and emplyment t achieve strnger and mre inclusive grwth.

2 Mderate and bumpy glbal grwth has been reflected in weak trade grwth and a slw pace f imprvement in labur markets Grwth amng the majr ecnmies was uneven in the first half f, largely reflecting a number f ne-ff factrs including unusual weather patterns in several cuntries and the strng effect f cnsumptin tax hike in Japan. The wrld ecnmy has been grwing at a rate similar t that f the last three years, but well belw the pre-crisis pace and slwer than during the initial rebund frm the glbal crisis. Wrld GDP Percentage change, seasnally adjusted annualised rate Surce: OECD Natinal Accunts database. The cntinued mderate pace f glbal grwth, with subdued grwth f trade-intensive investment, is reflected in the persistence f sub-par wrld trade grwth Glbal trade in gds and services Vlume, year-n-year percentage change Pre-crisis average (99-7) Surce: OECD Natinal Accunts database. The recvery in the labur market in the OECD regin as a whle remains at an early stage, althugh in the Nrth America and the United Kingdm emplyment grwth is nw slid and unemplyment is falling steadily, while in Japan unemplyment is back t pre-crisis levels and vacancies per jb-seeker have surpassed the peaks reached in 7. By cntrast, unemplyment in the eur area has nly just begun t retrace frm its pst-crisis peaks. Emplyment rates acrss the advanced ecnmies have increased nly slightly in recent years and remain well belw pre-crisis levels. Labur market data fr

3 emerging ecnmies are mre partial, but emplyment gains in thse cuntries as a grup are belw pre-crisis trends. Anther sign that labur market cnditins have yet t tighten significantly is that real wage grwth remains very weak in many cuntries. While this helped cntain jb lsses during the crisis and was necessary in sme eur area cuntries in rder t regain cmpetitiveness, it is nw hlding back a strnger recvery in cnsumer spending. 7 OECD emplyment Per cent f wrking age ppulatin 7. Real wages and labur prductivity Annualised percentage change, Q 9 Q Real wage Labur prductivity United States Japan Eur area -. Surce: OECD May Ecnmic Outlk database. Nte: Real wage is emplyee cmpensatin divided by ttal hurs wrked in the ecnmy, deflated by the CPI. Labur prductivity is real GDP divided by hurs wrked. Surce: OECD calculatins based n quarterly natinal accunts. Cntinued slw grwth in the eur area is the mst wrrying feature f the prjectins In mst f the majr ecnmies a mderate expansin lks set t cntinue, even if grwth prspects are in sme cases less psitive than prjected in the May Ecnmic Outlk: In the United States, the mderate underlying expansin remains bradly n track, after the weather-affected first quarter f and sharp secnd quarter rebund. Emplyment gains are set t cntinue, with business investment likely t strengthen. Grwth has remained slid s far this year in the United Kingdm and Canada, and is expected t cntinue at a healthy pace thrugh. In Japan, the sales tax increase in April resulted in vlatile demand in the first half f, but beginning in the secnd half f the year the underlying recvery is expected t reassert itself, reflecting imprved cnfidence, grwing emplyment and a reversal f the decline in real wages. China has s far managed t achieve an rderly grwth slwdwn t mre sustainable rates. Grwth rebunded in the secnd quarter after weakness early in the year, helped by a range f mini-stimulus measures, supprted by significant structural refrm measures. In India, cnfidence and spending have imprved markedly during as a result f prgress t cntrl inflatin and the perceptin that the new gvernment will reinvigrate grwthriented refrm. Grwth is expected t pick up in bth and.

4 In cntrast t these ecnmies, the Interim Frecasts indicate a significantly mre negative appraisal in tw cases: The recvery in the eur area has remained disappinting, ntably in the largest cuntries: Germany, France and Italy. Cnfidence is again weakening, and the anaemic state f demand is reflected in the decline in inflatin, which is near zer in the zne as a whle and negative in several cuntries. While the resumptin in grwth in sme periphery ecnmies is encuraging, a number f these cuntries still face significant structural and fiscal challenges, tgether with a legacy f high debt. Brazil fell int recessin in the first half f. Investment has been particularly weak, sapped by uncertainty abut the directin f plicy after the cming electins and the need fr mnetary plicy t restrain abve-target inflatin. A mderate rebund can be expected as these factrs unwind, but grwth is prjected t remain belw ptential in. The pssibility that eur area inflatin will stay lw and exacerbate weak demand is a key risk Inflatin has been falling steadily in the eur area fr nearly three years. As demand strengthens, inflatin is expected t turn back up and gradually cnverge n the EBC s target range. But the successin f dwnward surprises has increased the risk that inflatin remains far belw the ECB s target fr a mre extended perid r declines further. Excessively lw inflatin makes it mre difficult t achieve the relative price adjustments that remain necessary t rebalance eur area demand withut having t endure a prlnged perid f slw grwth and high unemplyment. Inflatin near zer als clearly raises the risk f slipping int deflatin, which culd perpetuate stagnatin and aggravate debt burdens. Sme reassurance n the risk f excessively lw inflatin has been prvided by the fact that, until recently, lng-term inflatin expectatins appeared well-anchred arund the ECB s definitin f price stability. As actual inflatin has cntinued t fall, hwever, implied expectatins frm swap rates ver the 6- year hrizn have drifted dwnward smewhat. Mrever, the experience f Japan in the 99s is a reminder that such expectatins measures can be pr predictrs f the actual future rate f inflatin: 6- year cnsensus expectatins in Japan were similarly near % in the early 99s, failing t fresee the descent int deflatin Cnsumer price inflatin -mnth percentage change f harmnised index f cnsumer prices Eur area Germany France Italy Spain Greece Surce: Eurstat.

5 Inflatin expectatins in the eur area Frm inflatin swaps; -day mving average, per cent Between and years Between and years Surce: Datastream. Imprtant risks hang ver the recvery, despite financial market bullishness Even apart frm the pssibility that entrenched lw inflatin feeds further negative grwth surprises in the eur area, there are many significant risks t the near-term utlk. Ntably, geplitical risks have grwn in recent mnths, with an intensificatin f cnflicts in Ukraine and the Middle East and increasing uncertainty abut the utcme f the referendum n Scttish independence. Als, many emerging ecnmies remain vulnerable t financial market shcks given the build-up f debt, particularly crprate debt, in recent years. The anticipated tightening f US mnetary plicy culd lead t shifts in internatinal financial flws and sharp exchange rate mvements that wuld be disruptive, especially fr sme emerging ecnmies. Of curse, nt all risks are n the dwnside. Fr example, successful implementatin f the cmprehensive assessment f banks in the eur area culd be assciated with faster-than-expected imprvements in credit flws. The bullishness f financial markets appears at dds with the intensificatin f several significant risks. A number f equity markets are reaching recrd highs, svereign bnd yields in several cuntries are near all-time lws and implied share price vlatility in the United States and Eurpe is arund pre-crisis levels. This highlights the pssibility that risk is being mispriced and the attendant dangers f a sudden crrectin.

6 Share prices Indices, Jan = Implied share price vlatility Per cent Develped markets Emerging markets United States: VIX index Eur area: VSTOXX index Nte: Series shwn are the MSCI Wrld and Emerging Markets indices. The MSCI Wrld Index cvers develped markets and the MSCI Emerging Markets Index emerging markets. Surce: Datastream. Surce: Datastream. The glbal recvery needs cntinued supprt fr demand, but macrecnmic plicy needs are increasingly diverse acrss cuntries Increasingly varied cyclical psitins means that the necessary macr plicy settings are diverging. The eur area needs mre vigrus mnetary stimulus, whereas the United States and the United Kingdm are mving t the end f their uncnventinal mnetary easing. Japan still needs quantitative easing t secure a lasting break with deflatin. Plicy settings in China are cnsistent with achieving an rderly grwth slwdwn, with ebbing inflatin pressures prviding ample rm fr stimulus if needed. By cntrast, inflatin remains abve target in Brazil and India and mnetary plicy will need t remain restrictive. Other majr central banks have eased mre aggressively than the ECB Central bank assets as per cent f GDP 6 United States Eur area Japan 6 Surce: Datastream. 6

7 Gvernment debt burdens remain heavy in mst majr advanced ecnmies but cnsiderable prgress has been made in fiscal cnslidatin. Given the weakness f demand, the flexibility within the EU fiscal rules shuld be used t supprt grwth. In Japan, by cntrast, the necessary cnslidatin is nly beginning and the challenge t ensure debt sustainability is substantially greater. The planned secnd rund f cnsumptin tax increases in shuld be implemented, supprted if necessary by ther measures, particularly further mnetary expansin, t manage demand. In the United States, cnslidatin needs are less pressing, but medium-term cnslidatin plans are still needed t keep public debt n a sustainable path. Amng emerging ecnmies, China s bradly neutral fiscal stance is apprpriate. The main challenge pertains t lcal gvernment debt. Recently annunced plicy changes g in the right directin: enhanced transparency, lwer fiscal risk stemming frm sub-natinal brrwing thrugh lcal gvernment financing vehicles and reduced pr-cyclicality f the budget. In India and Brazil, durable imprvement in fiscal situatins is still needed. In India, the quality f cnslidatin shuld be imprved, with a reductin in subsidies and a shift in expenditure t scial and physical infrastructure. Redesigning the fiscal rule in Brazil t take accunt f the business cycle, fr example by adpting an expenditure rule, wuld make a credible cmmitment t the necessary imprvement in the primary balance as the ecnmy recvers. Structural refrms are a key part f cmprehensive strategies fr strng and inclusive grwth The glbal recvery frm the crisis has been inadequate in several ways. Ecnmic slack has persisted, ptential grwth has slwed, and inequality has risen. Meanwhile, external imbalances and threats t financial stability have remained. T address these varius, ften inter-related, prblems, structural plicies have a key rle t play. In the eur area, fr example, structural weaknesses in the banking system have hindered the effectiveness f easing mnetary plicy as a means t supprt demand. The cmpletin f the banking unin and a credible cmprehensive assessment f banks will help t repair the transmissin mechanism f mnetary plicy, making stimulus measures mre effective. In the United States, stepped-up infrastructure investment wuld bst ptential grwth, while tax and labur market refrms culd help t address the rise in inequality. Strengthening cmpetitin wuld help stimulate innvatin and imprve the allcatin f resurces in many ecnmies. T that end, lwer barriers t trade and reduced administrative burdens n firms wuld ften be imprtant fr emerging ecnmies, while liberalisatin f services is a cmmn pririty amng advanced ecnmies. Tax simplificatin in develping cuntries like India and Brazil wuld remve a brake n investment. Emplyment culd be bsted in cuntries with large tax wedges n labur, like France, by reducing emplyer scial security cntributins. In rder t prevent the increased incidence f lng-term unemplyment frm being reflected in a lasting rise in the structural unemplyment rate, activatin plicies in a range f develped ecnmies will need t be strengthened. Remving barriers t female participatin in educatin and the labur frce has cnsiderable ptential t bst utput and wellbeing, especially in emerging ecnmies. The cntinued failure f the glbal ecnmy t generate strng, balanced and inclusive grwth underlines the urgency f ambitius refrm effrts. 7

8 The OECD Interim Ecnmic Assessment The OECD Interim Ecnmic Assessment is a partial update each September and March f the OECD s twice-yearly Ecnmic Outlk published in Nvember and May/June. Revised frecasts fr annual GDP grwth are prvided fr the G7 ecnmies and Brazil, China and India. The revised frecasts are based n a simplified versin f the prcess used t prepare the Ecnmic Outlk, based n mdels and judgement. Near-term develpments are assessed using the OECD s shrtterm indicatr mdels. Revisins in grwth prjectins vis-à-vis the May Ecnmic Outlk Clumn m Actual u May Ecnmic Outlk GDP grwth Per cent September Interim Frecasts difference May Ecnmic Outlk September Interim Frecasts difference United States Eur area Japan Germany France Italy United Kingdm Canada China India Brazil