2009 biac business roundtable global economic growth: how deep will it fall and when will it bounce...
TRANSCRIPT
2009 BIAC BUSINESS ROUNDTABLE
Global economic growth: how deep will it fall and when will it bounce back?
Jonathan CoppelCounsellor, Office of the OECD Chief Economist
Lisbon, 21 May 2009
Outline
What are the forces bearing on the global
economy?
How deep and long will the recession be?
How is macroeconomic policy responding?
Is the OECD too pessimistic?
Financial conditions are tight
Note: A unit decline in the index implies a tightening in financial conditions sufficient to produce an average reduction in the level of GDP by 1/2 to 1% after 4-6 quarters. Source: Datastream; and OECD calculations.
Stock markets have plunged
Source: Datastream.
(Share price indices, 1 January 2007 =100)
House prices are falling…
Source: Datastream.
(Last data, share price indices,1 January 2007 =100)
…dragging down housing investment in all countries…
Year-on-year growth rate
Note: 2009q2 is forecasted for most countries.Source: OECD Economic Outlook 85 database.
Lower commodity prices will boost real incomes
Source: OECD, Main Economic Indicators database.
Industrial production has tumbled…Index, January 2000 = 100
Source: Datastream.
…driving inventories up steeply…
1 Inventory/sales ratio, index January 2000 =100, seasonally adjusted, total business.2 Inventory/sales ratio, index January 2000 =100, seasonally adjusted, mining and manufacturing.3 Inventory/sales ratio, index January 2000 =100, seasonally adjusted, industry survey.Source: Datastream.
…and world trade to contract
Source: OECD.
(Annualised quarter-on-quarter growth, %)
Growth will collapse this year and stagnate in 2010
OECD area, unless noted otherwise
Average 2008 2009 2010
1996-2005 2006 2007 2008 2009 2010 q4 q4 q4
Per cent
Real GDP growth1 2.7 3.1 2.7 0.9 -4.3 -0.1 -1.5 -3.4 1.1
United States 3.2 2.8 2.0 1.1 -4.0 0.0 -0.8 -3.5 1.1
Euro area 2.1 3.0 2.6 0.7 -4.1 -0.3 -1.4 -3.5 0.8
Japan 1.1 2.0 2.4 -0.6 -6.6 -0.5 -4.3 -4.4 0.4
Unemployment rate 36.6 6.0 5.6 6.0 8.4 9.9 6.5 9.3 10.1
Fiscal balance 4 -2.2 -1.3 -1.4 -3.0 -7.2 -8.7
Memorandum Items
World real trade growth 7.0 9.5 6.9 2.5 -13.2 1.5
World real GDP growth 53.4 4.3 4.1 2.2 -2.7 1.2
1. Year-on-year increase; last three columns show the increase over a year earlier.
2. Per cent of potential GDP. Estimates of potential have not been revised and therefore do not incorporate a
possible reduction in supply implied by the downturn.
3. Per cent of labour force.
4. Per cent of GDP.
5. OECD countries plus Brazil, Russia, India and China only, representing 82% of world GDP at 2000
purchasing power parities.
Source: OECD.
The recession is the most synchronised in post-war history
Proportion of all OECD economies experiencing at least two consecutive quarters of downturn¹
1. The last historical observation is for 2008q4.Source: OECD.
Unemployment will rise substantially
Source: OECD.
(In percentage of labour force)
Inflation will decreaseYear-on-year growth rate, %
Note: Inflation is based on consumer price index (CPI )for Japan, PCE deflator for the US, and harmonised index of consumer price for the Euro area.Source: OECD.
A slow recovery is foreseen
Source: OECD.
Policy rates have been slashed
1. The solid line represents the policy rate of central banks. The blue line money market rates Source: Bloomberg, Bank of Japan, Datastream, ECB.
Last observation : 4 May 2009
Fiscal policy is expansionary(Cumulative impact on net lending, % of GDP, 2008-2010)
1. Simple OECD average.2. Weighted OECD average.Source: OECD.
Fiscal packages Automatic stabilisers
The effect of fiscal packages on GDP varies across countries
Effect on level of GDP (%), 2009-10
Note: Bars indicate values based on the reference multiplier case. Crosses show estimates based on a high multiplier alternative. See Box 3.1 (p.114-116 of OECD Economic Outlook interim report) for explanation of the basis for the multiplier assumptions. Countries are arranged according to the size of effect in 2009.Source: OECD.
Some improvement in financial conditions and some
economic indicators point to a bottoming-out.
Large risks remain, but they are now more evenly
balanced.
Financial system still vulnerable to weakness in real
economy. A faster increase in bond yields.
Policy stimulus could be more effective than
assumed and financial problems resolved earlier.
Is the OECD too pessimistic?
Money market conditions have improvedLast observation: 14 May 2009
Note: Spread between three-month EURIBOR and EONIA swap index for euro area; spread between three-month LIBOR and overnight indexed swap for the United States.Source: Datastream.
Business confidence shows signs of an upturn
Note: Series have been normalised at the average for the period starting in 1985 and are presented in units of standard deviation.Source: Datastream.
General government gross financial liabilities
Source: OECD.
High government debt tends to raise long-term interest rates
Note: Bars represent average across all OECD countries for which data is available over the period 1994 to 2007. Short-term interest rates are typically rates on 3-month Treasury bills and long-term interest rates those on 10-year government bonds.Source: OECD.
(Spread between long term and short term vs. government debt in % of GDP)
A final word…
“The national budget must be balanced. The public debt must be reduced. The arrogance of the authorities must be moderated and controlled. Payments to foreign governments must be reduced, if the nation doesn’t want to go bankrupt. People must again learn to work, instead of living on public assistance.”
