OECD’s Economic Outlook
The global economy is moving forward, but divergence between countries and regions reflects the uneven progress made toward recovery from the economic crisis, according to the OECD’s latest Economic Outlook No 93. Historically high unemployment remains the most serious challenge facing governments.
World real gross domestic product is projected to increase by 3.1 per cent this year and by 4 per cent in 2014. Across OECD countries, GDP is projected to rise by 1.2 per cent this year and by 2.3 per cent in 2014, while growth in non-OECD countries will rise by 5.5 per cent this year and 6.2 per cent in 2014.
In the USA, activity is projected to rise by 1.9 per cent this year and by a further 2.8 per cent in 2014. GDP in the euro area is expected to decline by 0.6 per cent and rebound by 1.1 per cent in 2014, while in Japan GDP is expected to slow from 1.6 per cent to 1.4 per cent between these two years.
Real GDP growth in per cent
“The global economy is strengthening gradually, but the upturn remains weak and uneven,” said OECD Secretary-General Angel Gurría. “Supportive monetary policies, improving financial market conditions and a gradual restoration of confidence are at the root of the recovery. Also, the fiscal adjustment of the last few years is beginning to pay off. Several countries are close to stabilising their government debt-to-GDP ratios and ensuring a gradual decline in indebtedness over the longer term,” Gurría said.
Downside risks to the outlook have narrowed, but are still large. Adverse interactions between weakly capitalised banks, government finances and the real economy remain a significant risk in the euro area. Fiscal concerns remain in the United States and Japan in the absence of credible medium-term consolidation plans. Future withdrawal of exceptional monetary policy measures could lead to instability in financial markets. There is a risk that potential growth rates may be lower than currently estimated following the global economic crisis.
Growth was at its weakest in a decade in 2012, reflecting both subdued external and domestic demand, including from fiscal tightening. Growth should gradually recover in calendar year 2013 as efforts to speed up the approval of large investment projects and the partial deregulation of foreign direct investment take effect. Headline inflation has remained stubbornly high, but inflation is expected to decline further as the effects of poor weather on food prices and hikes in administered prices fade.
Fiscal tightening and the new fiscal consolidation roadmap are welcome and should allow monetary policy to be eased further. On-going efforts to better target household transfers are commendable although further progress is needed. Energy subsidies remain high and should be cut. The tax system should also be reformed to raise more revenue in a less distortive way so as to boost private investment and competitiveness. In particular, the long-awaited reform of indirect taxes should be implemented swiftly. However, structural bottlenecks continue to constrain both investment and growth potential and addressing them is the key to boosting growth and raising living standards.
After showing signs of recovery in late 2012, growth unexpectedly weakened in the first quarter of 2013. The slowdown came mainly from capital formation, in particular from a swing in stock-building. Inflation has been declining but stabilised in early 2013. Given the strong growth in credit and more supportive fiscal policy, some turnaround in output growth can be expected by mid-2013. Nonetheless, growth for 2013 as a whole is projected to be subpar for the second consecutive year. In 2014, faster world trade may also boost the economy, bringing growth to 8.4 per cent. With more limited export market share gains than in the past, the current account surplus may shrink anew.
With low inflation and substantial slack there may be room for some monetary relaxation, while implementing the recent and welcome measures to safeguard financial stability. Appropriately, fiscal policy is slightly expansionary. Fostering sustainable and more inclusive growth calls for stepping up structural reform. A detailed time path for reform implementation is needed, notably in the areas of interest rate deregulation, increased labour market flexibility through the lowering of barriers to internal migration and expanding the supply of building land.