economic-outlook-97-investment-the-way-out-of-the-b-minus-economy
Post on 28-Jul-2015
47.187 Views
Preview:
TRANSCRIPT
Investment and the B- global
economy: how to get a better ‘grade’
Paris, 3rd June 2015
10h20 Paris time
Catherine L. Mann OECD Chief Economist
Release of the June 2015
OECD Economic Outlook
Key messages
Global growth improving, but still moderate – the B- world economy could do better
Monetary easing (accompanied by currency depreciation in some countries), reduced fiscal drag and low oil prices underpin the projected improvement
Stronger investment is needed to strengthen demand, halt the slowdown in potential growth, improve diffusion of technology and increase employment
Balanced packages of mutually reinforcing monetary, fiscal and structural policies, undertaken collectively, are needed to get the strong, inclusive, sustainable growth that would earn the world economy an A
Global growth is projected to strengthen,
though remaining below long-run averages
Real GDP growth Per cent, seasonally adjusted annualised rate
Source: June 2015 Economic Outlook database.
Reduced fiscal drag—except Japan
Monetary easing—for 50% of global GDP
Currency depreciation—except US
Lower oil prices – adds 0.5% to level of global GDP
0
1
2
3
4
5
6
7
0
1
2
3
4
5
6
7
World OECD Non-OECD
1995-2007 average
Growth projections for 2015-16
GDP Volume, percentage change
June 2015 OECD Economic Outlook projections.
Column1 2014 2015 2016
World 3.3 3.1 3.8
United States 2.4 2.0 2.8
Euro area 0.9 1.4 2.1
Japan -0.1 0.7 1.4
China 7.4 6.8 6.7
India 7.2 6.9 7.6
Brazil 0.2 -0.8 1.1
Russia 0.6 -3.1 0.8
1. BRIIS comprises Brazil, India, Indonesia, Russia and South Africa, weighted by GDP at PPP exchange rates .
Source: November 2014 & June 2015 OECD Economic Outlook database.
Projected GDP growth, change between November 2014 and June 2015 Percentage points
Projections mostly revised down since
November Economic Outlook
-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5
World
United States
Euro area
Japan
BRIIS
China
2015 2016
Upward revision Downward revision
1
Some of the downward revision reflects
pronounced weakness in Q1 2015
Real GDP growth Per cent, seasonally adjusted annualised rate
Source: June 2015 Economic Outlook database.
A further decline in China’s growth rate
Surprisingly sharp Q1 slowdown in the United States
Result: slower growth of the world economy than in any quarter since the crisis
-8
-4
0
4
8
12World United States China
Low oil prices will boost consumption
and investment in the major economies
.
Estimated effect of oil price decline since mid-2014 after two years if Brent
remains at USD 65 per barrel Impact on level of real GDP in 2016, per cent
Note: Simulation uses price difference of USD 20 per barrel relative to baseline in 2014Q3, USD 30 in 2014Q4, USD 40
in 2015Q1 and USD 35 from 2015Q2 onward.
Source: International Energy Agency; International Monetary Fund; and OECD calculations.
-1.2
-0.8
-0.4
0.0
0.4
0.8
1.2
-1.2
-0.8
-0.4
0.0
0.4
0.8
1.2
OECD netimporters
United States Non-OECD netimporters
World Non-OECD netexporters
OECD netexporters
Fiscal policy will exert less drag on growth
Change in underlying primary balance Per cent of potential output
Note: BRIICS are Brazil, China, India, Indonesia, Russia and South Africa.
Source: June 2015 OECD Economic Outlook database; IMF WEO database.
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
United States Euro area Japan OECD BRIICS
2012 2013 2014 2015 2016
Widespread monetary easing in recent
months is supportive for global demand
Source: OECD calculations.
Cumulative share of world GDP of countries whose central banks
have eased monetary policy since November 2014 Per cent
0
10
20
30
40
50
60
0
10
20
30
40
50
60
Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15
Depreciation has eased financial conditions
but worsened foreign currency debt exposure
Source: June 2015 OECD Economic Outlook database.
Bilateral nominal exchange rates
(USD/domestic currency)
Percentage change between July 2014 and May 2015
Real effective exchange rates
-35 -30 -25 -20 -15 -10 -5 0
United States
China
India
United Kingdom
Canada
Mexico
Japan
Euro area
Turkey
Brazil
Russia
-20 -15 -10 -5 0 5 10 15
United States
China
India
United Kingdom
Canada
Mexico
Japan
Euro area
Turkey
Brazil
Russia
Advanced economy labour markets are
healing, though the process is incomplete
Unemployment rate Per cent of labour force
Note: Real wages are nominal compensation per employee, deflated by corresponding CPI.
Source: June 2015 OECD Economic Outlook database.
Real wages Percentage change, seasonally adjusted
annualised rate
0
2
4
6
8
10
12
14
0
2
4
6
8
10
12
14
United States Euro area
Japan OECD -4
-3
-2
-1
0
1
2
3
4
-4
-3
-2
-1
0
1
2
3
4
United States Euro area Japan
Risks
Ordinary risks are balanced
Investment growth could again fail to accelerate, but capital spending by cash-rich companies could be stronger than projected.
Given uncertainty about the degree of labour market slack, wage growth in the US and Japan could be faster or slower than assumed.
The effect of monetary easing in the euro area and Japan could be either stronger or weaker than projected.
Oil prices could surprise on either side.
Economic Outlook forecast errors for GDP Percentage points
Note: Bars show the range of one-year-ahead forecast errors
over 10 Economic Outlooks from 2009 to 2013.
Source: June 2015 OECD Economic Outlook database.
-5
-4
-3
-2
-1
0
1
2
3
4
-5
-4
-3
-2
-1
0
1
2
3
4
OECD United States Euro area Japan
Average forecast error
… but there are a number of extraordinary risks
Overshooting of a rebound from exceptionally low advanced economy bond yields
Financial turmoil in emerging market economies
Unfavourable resolution of Greece’s situation
Sharp slowdown in China
Why the world economy only rates a “B-”
Labour market remains scarred
Long-term unemployed (more than one year)
Per cent of total unemployed1
1. Three-quarter moving averages, not seasonally adjusted.
2. Not in employment, education or training.
Source: OECD calculations based on quarterly national labour force surveys.
NEET2 rates among youth
Per cent of youth population aged 15-29
0
10
20
30
40
50
60
0
10
20
30
40
50
60
United States OECD Japan Euro area
Q4 2007 Q4 2014
0
5
10
15
20
25
30
35
40
45
0
5
10
15
20
25
30
35
40
45
Japan OECD Euroarea
UnitedStates
Mexico Turkey
2007 2014
Productivity growth has slowed
Labour productivity Annual average percentage change over the period
Source: June 2015 OECD Economic Outlook database.
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
OECD United States Euro area Japan
1980-1994 1995-2007 2008-2010 2011-2014
Investment recovery
lags previous cycles
Business investment in different cycles Cyclical peak in OECD real business fixed investment=100
(date of peak indicated)
Source: June 2015 OECD Economic Outlook database.
Sluggish investment means:
● Slower potential output growth
● Labour scarring
● Stagnant incomes, rising inequality
● Slower technology diffusion from innovation frontier 80
90
100
110
120
130
140
150
80
90
100
110
120
130
140
150
t 2 4 6 8 10 12 14 16 18 20 22 24 26 28
t=1973Q4 t=1981Q4
t=2000Q3 t=2008Q1
Quarters since the peak
Sluggish investment explains part of the
slowdown in potential growth Loss in potential output relative to pre-crisis trend
Percentage point difference in 2014, relative to the counter-factual
Note: “Employment” is the combined contribution of changes in the NAIRU and the participation rate.
Source: OECD calculations based on June 2015 Economic Outlook database.
-12
-10
-8
-6
-4
-2
0
2
4
-12
-10
-8
-6
-4
-2
0
2
4
Employment Capital per worker TFP Total
Policies: getting to an “A”
Monetary policy is on track
in the major economies Inflation expectations 2-3 years ahead, per cent
Note: Expected average annual inflation based on inflation swaps.
Source: Datastream; OECD calculations.
With below-target inflation and sub-par growth almost everywhere, most central banks should maintain a supportive monetary policy
Policy rates are expected to begin normalising first in the United States, which will pose challenges elsewhere
Swings in commodity prices and exchange rates should trigger a policy change only if expectations are becoming de-anchored
0.0
0.5
1.0
1.5
2.0
2.5
3.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0United States Japan Euro area
Addressing medium-term fiscal challenges
would reduce uncertainty
Public debt Per cent of GDP
Note: For health care expenditure, averages across countries are unweighted. BRIICS are Brazil, China, India, Indonesia,
Russia and South Africa. Health care expenditure is projected with assumption that countries do not implement policies
which would reduce the expenditure.
Source: June 2015 Economic Outlook database; OECD Economic Policy Papers, No. 06, "Public spending on health and
long-term care: a new set of projections“.
Public health care expenditure pressure Percentage deviation from 2006-10
expenditure/GDP ratio
40
60
80
100
120
140
160
180
200
220
240
40
60
80
100
120
140
160
180
200
220
240United States
Japan
Euro area
OECD
0
1
2
3
4
5
6
7
0
1
2
3
4
5
6
7
OECD BRIICS
2030 2060
Structural policy can help to revive
investment, supporting inclusive growth
Estimated impact of shocks on investment Percentage change after 5 years
1. 16% reduction in OECD index of regulation in energy, transport and
communications (ETCR) over 5 years, equivalent to the average pace of
reduction among 15 OECD countries during the period 1993-2013.
2. Two-standard-deviation reduction in policy uncertainty corresponds to a 26%
reduction.
Source: OECD calculations.
Diffusion of
innovation Investment
Potential
growth
Demand, jobs
0.0
0.2
0.4
0.6
0.8
1.0
1.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Product marketliberalisation
Two-standard-deviation
reduction inpolicy
uncertainty
1% increase inforeign demand
1% increase indomesticdemand
1
2
Key messages
Global growth improving, but still moderate – the B- world economy could do better
Monetary easing (accompanied by currency depreciation in some countries), reduced fiscal drag and low oil prices underpin the projected improvement
Stronger investment is needed to strengthen demand, halt the slowdown in potential growth, improve diffusion of technology and increase employment
Balanced packages of mutually reinforcing monetary, fiscal and structural policies, undertaken collectively, are needed to get the strong, inclusive, sustainable growth that would earn the world economy an A
top related