1

What is the economic outlook for OECD countries?

Paris, 22 May 201210h Paris time

Angel GurríaSecretary-General

&Pier Carlo Padoan

Deputy Secretary-General and Chief Economist

2

The outlookTh

e ou

tlook

2010 2011 2012 2013

United States 3.0 1.7 2.4 2.6

Euro area 1.9 1.5 -0.1 0.9

Japan 4.5 -0.7 2.0 1.5

Total OECD 3.2 1.8 1.6 2.2

Source: OECD Economic Outlook 91 database.

Brazil 7.6 2.7 3.2 4.2China 10.4 9.2 8.2 9.3India 10.6 7.3 7.1 7.7Indonesia 6.2 6.5 5.8 6.0Russian Federation 4.3 4.3 4.5 4.1South Africa 2.9 3.1 3.3 4.2

Real GDP growth, in per cent

3

Growth outlook different across regionsTh

e ou

tlook

Source: OECD Economic Outlook 91 database.

Annualised quarterly real GDP growth, in per cent

-20

-15

-10

-5

0

5

10

-20

-15

-10

-5

0

5

10

United States

Euro area

Japan

4

Moderate pickup in world tradeW

orld

trad

e

Source: CPB.

CPB indicator of world merchandise trade, 2001 = 100

2001 2001 2002 20022003 2003 2004 2005 2005 2006 2006 2007 2008 2008 2009 2009 2010 2010 2011 201290

100

110

120

130

140

150

160

170

180

90

100

110

120

130

140

150

160

170

180

5

World growth sustained by emerging economies

Wor

ld g

row

th

Note: Calculated using moving nominal GDP weights, based on national GDP at purchasing power parities.

Source: OECD Economic Outlook 91 database.

Contribution to annualised quarterly world real GDP growth, percentage points

-8

-6

-4

-2

0

2

4

6

8

-8

-6

-4

-2

0

2

4

6

8

Non-OECD

OECD

6

Unemployment rates are divergingU

nem

ploy

men

t

Source: OECD Economic Outlook 91 database.

Unemployment rate, percentage of labour force

2

3

4

5

6

7

8

9

10

11

12

2

3

4

5

6

7

8

9

10

11

12

United States

Euro area

Japan

7

Business confidence weak in euro areaBu

sine

ss c

onfid

ence

Note: Values greater than 50 signify an improvement in economic activity.Source: Markit Economics Limited.

Purchasing Managers Index (PMI) for manufacturing and services

United States Euro area

25

30

35

40

45

50

55

60

65

25

30

35

40

45

50

55

60

65

ManufacturingNon manufacturing

25

30

35

40

45

50

55

60

65

25

30

35

40

45

50

55

60

65

ManufacturingServices

8

Consumption has stagnated in euro areaPr

ivat

e co

nsum

ption

Note: Private consumption volumes are indexed to 100 in the quarter in which they reached the lowest level during the last three recessions. Zero on the horizontal axis corresponds to the quarter of these troughs. Source: OECD Economic Outlook 91 database.

Private consumption volumes, index 100 at cycle troughs

95

100

105

110

115

120

95

100

105

110

115

1201980:Q2 trough1991:Q1 trough2009:Q2 trough

United States

95

100

105

110

115

120

95

100

105

110

115

1201982:Q3 trough1993:Q1 trough2009:Q1 trough

Euro area

9

Lending to consumers is growing robustly in the United States

Lend

ing

indi

cato

rs

Note: Annualised monthly rate of change of seasonally adjusted stocks, in per cent. Euro area data are adjusted for the impact of securitisation. Last observation: March 2012 Source: Datastream and ECB.

Annualised monthly percentage change

Total US consumer loans

20072007

20082008

20092009

20102010

20112011

2012-12

-6

0

6

12

18

-12

-6

0

6

12

18

20072007

20082008

20092009

20102010

20112011

2012-12

-6

0

6

12

18

-12

-6

0

6

12

18

Euro area bank loans to private sector

10

Deleveraging has barely begun in the euro area

Hou

seho

ld d

elev

erag

ing

Note: Data for USA and Japan are not consolidated. For 2011 Q3 data are growth rates (2010 end of year to 2011 Q3) of balance sheets published by US Federal Reserve, Bank of Japan, and ECB. Euro area 3 is Germany, France and Italy. Source: OECD Annual National Accounts.

Household gross debt, percentage of net disposable income

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201170

80

90

100

110

120

130

140

150

70

80

90

100

110

120

130

140

150

United StatesEuro area 3Japan

11

Underlying inflation to remain moderateIn

flatio

n

Note: United States - deflator of personal consumption expenditures (PCE) excluding food and energy; Euro area - harmonised index of consumer prices (HICP) excluding food, energy, tobacco and alcohol; Japan - consumer price index (CPI) excluding food and energy. Source: OECD Economic Outlook 91 database.

Core inflation, 4-quarter percentage change

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

3

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

3

United States

Euro area

Japan

12

Monetary policy rates accommodativeM

onet

ary

polic

y ra

tes

Source: Datastream.

Policy interest rates, in per cent

2008200820082008200820092009200920092009201020102010201020112011201120112011201220120

0.5

1

1.5

2

2.5

3

3.5

4

4.5

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

United States

Euro area

Japan

13

Central bank balance sheets supportiveCe

ntra

l ban

k ba

lanc

e sh

eets

Source: Federal Reserve; Bank of Japan; and European Central Bank.

Central bank liabilities, local currency

2007 2008 2009 2010 2011 2012500

1000

1500

2000

2500

3000

3500

500

1000

1500

2000

2500

3000

3500

United States (bn dollars)

Euro area (bn euros)

Japan (100 bn yens)

14

Fiscal consolidation combines spending reductions and tax increases

Fisc

al c

onso

lidati

on

Note: Total consolidation is the projected difference in the underlying primary balance; revenue side is the projected increase in the underlying receipts excluding interest earned on financial assets; and spending side is the projected decline in the underlying primary spending excluding interest payments on debt.Source: OECD Economic Outlook 91 database; and OECD calculations.

Change in the underlying primary balance 2011-13, in per cent of potential GDP

-1

0

1

2

3

4

5

6

7

8

-1

0

1

2

3

4

5

6

7

8

Revenue side

Spending side

Total consolidation

15

Government debt sustainability remains a long-term challenge

Gov

ernm

ent d

ebt s

usta

inab

ility

Note: See OECD Economic Outlook 91 for methodology. The bars show the average improvement in the underlying primary balance between 2011 and 2030 necessary to either stabilise government debt ratios or bring them down to 60% of GDP. In Japan’s case, the average consolidation shown would be sufficient to stabilise the debt ratio but only after 2030. Source: OECD Economic Outlook 91 long-term database.

Average increase in the underlying primary balance from 2011 to 2030, in percentage points of GDP

-2

0

2

4

6

8

10

12

14

16

-2

0

2

4

6

8

10

12

14

16Debt stabilisation

Debt ratio to 60%

16

Rebalancing underway in euro areaEu

ro a

rea

reba

lanc

ing

Source: OECD Economic Outlook 91 database.

Changes in domestic demand and trade balances, 2009-13

-4 -2 0 2 4 6 8 10 12-25

-20

-15

-10

-5

0

5

10

15

-23.5642110579322

-13.7157192995885

-10.6632478477473-10.0535816416493

-6.80897625464948

-2.6214715929012

0.1378226035103854.05065671402995

4.08343387591079

5.217028741199187.27579521848127

8.0315519066202611.5108941381026

14.1601142949051

Change in merchandise trade balance between 2009 and 2013 (% of GDP)

Cum

ulati

ve c

hang

e in

dom

estic

dem

and

betw

een

2009

and

201

3 (%

)

17

Unit labour costs have begun to adjustU

nit l

abou

r cos

ts

Source: OECD Economic Outlook 91 database.

Unit labour cost, 1999 = 100

GRC IRL ESP ITA PRT NLD FIN BEL FRA AUT DEU100

110

120

130

140

150

160

100

110

120

130

140

150

160

2009 2013

18

Euro area policy compactEu

ro a

rea

polic

y

Goals

• Avoid downside scenario

• Create conditions for sustained growth

• Strengthen monetary union

This requires

• National policies

• European policies

19

Euro area policy compact – national policies

Euro

are

a po

licy

Pro-growth structural reforms

• Boost growth through productivity and employment

• Strengthen competitiveness

• Protect weak segments of population

• Contribute to current account rebalancing

• Wage adjustment in deficit and surplus countries

Growth friendly fiscal consolidation

• Medium term plans

• Composition of spending cuts and revenues

Financial system repair

• Transparency in balance sheet assessment

• Recapitalise viable banks

Reforms have already started in many countries. Benefits could materialise earlier than expected.

20

Large potential gains from a broad package of reforms

Gai

ns fr

om re

form

Note: Estimated cumulative GDP impact from reforms specified in Bouis and Duval (2011). The coverage of reforms varies across countries, partly because of data coverage issues. This figure therefore does not show a ranking across countries but possible effects from structural reforms. Source: R. Bouis and R. Duval (2011), OECD Economics Department Working Papers, No. 835.

Overall GDP per capita gains over 10-year horizon, in per cent

IRL LUX NLD DEU FIN PRT ITA ESP FRA AUT GRC BEL0

2

4

6

8

10

12

14

16

18

20

0

2

4

6

8

10

12

14

16

18

20

21

Euro area policy compact – EU policiesEu

ro a

rea

polic

y

Firewall

• Has been strengthened

• Could be enhanced

Fiscal compact

• Implementation, transparency, communication

Growth

• Single Market can deliver (much) more

• Innovation can be boosted (EU patent)

• EIB lending, infrastructure investment

• Jointly guaranteed bonds

• Redirect structural funds

European Central Bank

• Balance sheet could be used more broadly

• Interest rate can be lowered

22

What is the economic outlook for OECD countries?

Paris, 22 May 201210h Paris time

Angel GurríaSecretary-General

&Pier Carlo Padoan

Deputy Secretary-General and Chief Economist