Economic Outlook No. 95

Transcription

1 Economic Oulook No. 9 6 May h00 (Paris ime) Press Conference Angel Gurría Secreary-General & Rinaro Tamaki Depuy Secreary-General and Acing Chief Economis For a video link o he press conference and relaed maerial:

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4 EDITORIAL Achieving a Resilien Recovery The recovery from he Grea Recession has been slow and arduous, and has a imes hreaened o derail alogeher. The major advanced economies are finally gaining momenum. Privaesecor confidence is rebuilding. Afer years of weakness, invesmen and rade have sared o rebound. While unemploymen remains unaccepably high, he labour marke siuaion is improving in mos counries and has sopped deerioraing virually hroughou he advanced economies. On he oher hand, he pace of growh in he major emerging marke economies has slowed. Par of his deceleraion is benign, reflecing cyclical slowdowns from overheaed saring posiions - he growh raes now seen in China are undoubedly more susainable from boh economic and environmenal perspecives han he double-digi pace of a few years ago. However, managing he credi slowdown and he risks ha buil up during he period of easy global moneary condiions could be a major challenge. The likelihood of some of he mos worrisome evens ha have preoccupied markes and policymakers in recen years has diminished. Risks are overall beer balanced alhough sill iled o he downside. Financial ensions in emerging markes are one risk ha could blow he global recovery off course and have bigger spillovers han anicipaed. I is no he only one. Falling inflaion in he euro area could urn ino deflaion. Geopoliical risks have also increased since he sar of he year. Policy focus can now swich from avoiding disaser o fosering a sronger and more resilien recovery. The legacy of he crisis sill needs o be addressed. The crisis has lef scars in he labour marke, noably higher unemploymen and lower paricipaion of he more vulnerable groups. Growh prospecs are weaker han in he pre-crisis era. Moreover, one of he key lessons of he crisis is he need o make our economies and socieies more resilien more robus o shocks and more inclusive, wih he welfare gains from sronger growh beer shared across he populaion. While seps have been aken in boh areas, much more needs o be done. Afer difficul years of low growh and fiscal sringency, policymakers are facing hese challenges wih depleed poliical capial. Bu hey need o seize he opporuniy o se global growh on a sronger and more susainable fooing. This is key o supporing confidence and has o be backed

5 by macroeconomic and srucural policy acions, including he promoion of insiuional frameworks ha suppor he implemenaion of reforms. Given persising downside risks, high unemploymen, below-arge inflaion, and high levels of governmen deb, moneary policies need o remain accommodaive in he main OECD areas. In paricular, we call on he European Cenral Bank (ECB) o ake new policy acions o move inflaion more decisively owards arge and o be ready for addiional non-convenional simulus if inflaion were o show no clear sign of reurning here. The high levels of governmen deb in all major advanced economies mean ha here is lile room for fiscal accommodaion. Neverheless, following significan progress in sabilising heir public finances, mos OECD counries can noneheless afford he planned slowdown in srucural budge improvemen. This is no he case of Japan where consolidaion needs remain very large. Given is high level of public deb, a credible medium-erm fiscal consolidaion plan is essenial. In mos counries, reducing public deb o more pruden levels and managing fuure pension and healh spending pressures will be a challenge and requires fiscal reforms o ensure he susainabiliy of public finances wihou compromising he qualiy of public services. I is now ime o speed up he pace of srucural reforms. Such reforms, while ofen facing resisance from vesed ineress, can offer a win-win by raising growh poenial and allowing many of he poores o achieve higher living sandards. These policies are criical o he success of Abenomics in Japan, as well as o rebalance of he euro area and foser he convergence o higher incomes by emerging economies. While impressive reform effors have been made by crisis counries, here remains subsanial scope o boos produciviy and creae jobs hrough policies o remove barriers o domesic and inernaional compeiion in boh advanced and emerging economies. This would increase innovaion and help ge he mos ou of global value chains, as well as boos invesmen in he near erm and suppor resilience. As unemploymen sars receding, measures o ackle long-erm unemploymen and make sure i does no become enrenched are a high prioriy ha requires reforms o remove obsacles o more robus job creaion and srenghen and redesign acive labour marke policies. 6 May 201 Rinaro Tamaki Depuy Secreary-General and Acing Chief Economis

6 SUMMARY Global growh and rade are projeced o srenghen a a moderae pace hrough 201 and 201. Aciviy in he OECD economies will be boosed by accommodaive moneary policies, supporive financial condiions and a fading drag from fiscal consolidaion. However, unemploymen is likely o decline only modesly, wih 11¼ million exra people unemployed a end-201 han a he onse of he crisis, and inflaionary pressures will be mued. Growh in many of he large emerging marke economies (EMEs) is expeced o remain modes relaive o pas norms, wih igher financial and credi condiions and pas policy ighening aking effec and supply-side consrains also damping poenial oupu growh. The recovery in he Unied Saes should gain pace, lowering unemploymen and reducing economic slack, wih inflaion rising close o arge. A more modes upurn is likely in he euro area, wih unemploymen remaining high and disinflaionary pressures ebbing only slowly. Sronger fiscal consolidaion will check growh momenum in Japan, bu core inflaion could coninue o rise, alhough, absracing from indirec ax effecs, sill remain below is arge. Normal demand-side acceleraor-ype mechanisms, healhier corporae balance shees and reduced uncerainy should help business invesmen o srenghen gradually, and hereby push up rade inensiy. Moneary policy needs o remain accommodaive, especially in he euro area, where a furher ineres rae reducion is meried given low inflaion developmens, and in Japan, where asse purchases should be coninued as planned. In he Unied Saes, where he recovery is more firmly based, asse purchases should be ended in 201 and policy raes should sar o be raised during 201. In China, moneary policy will need o be eased if growh were o slow sharply. The planned slowing in he pace of fiscal consolidaion in he Unied Saes and some euro area counries is warraned given pas effors, bu srong consolidaion should proceed seadily in Japan given high governmen indebedness. Srucural reforms in all economies remain essenial o enhance resilience and inclusiveness, srenghen growh and job prospecs, and ease boh exernal imbalances and long-erm fiscal burdens. Significan risks remain o he baseline projecion. These are sill iled o he downside despie he improving oulook. The exen of he slowdown and he fragiliy of he banking sysem in China are uncerain. Risks also remain from he possible ineracion of financial vulnerabiliies in some EMEs 6

7 and prospecive moneary policy normalisaion in he Unied Saes. Evens in Ukraine have also raised geopoliical uncerainy. In he euro area, here is a risk ha inflaion could weaken furher if growh disappoins, or he euro appreciaes furher, or inflaion expecaions become unanchored. Wih financial fragiliies persising, i is also urgen o improve he healh of he banking secor, complee he esablishmen of a fully-fledged banking union and susain reform momenum. The comprehensive assessmen of euro area banks mus provide reliable esimaes of capial needs and be followed by swif recapialisaions or, if necessary, resoluions. Oupu and invesmen growh could surprise on he upside if pen-up demand and increasing household formaion raes were o boos US aciviy more quickly han projeced, and if a posiive oucome from he comprehensive assessmen of euro area banks improved confidence and eased financial fragmenaion. 7

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