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High uncertainty weighing on global growth 20 September 2018 - - PowerPoint PPT Presentation

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OECD INTERIM ECONOMIC OUTLOOK High uncertainty weighing on global growth 20 September 2018 Laurence Boone OECD Chief Economist http://www.oecd.org/eco/outlook/economic-outlook/ ECOSCOPE blog: oecdecoscope.wordpress.com Key messages Global

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20 September 2018

Laurence Boone

OECD Chief Economist

OECD INTERIM ECONOMIC OUTLOOK

High uncertainty weighing on global growth

http://www.oecd.org/eco/outlook/economic-outlook/ ECOSCOPE blog: oecdecoscope.wordpress.com

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SLIDE 2

Key messages

2

Global growth is peaking and is less synchronised

  • Global growth should plateau at 3.7% in 2018 and 2019
  • The job market has recovered but slack remains and wage growth is disappointing

Risks are intensifying, uncertainty is widespread

  • Rising trade restrictions risk hurting jobs and living standards
  • Tightened financial conditions increase stress on a number of EMEs
  • Political risks could prevent Europe from thriving
  • Ten years after the crisis, some financial risks have built up again

Policies should aim to enhance resilience, productivity and inclusiveness

  • Reduce policy uncertainty, especially for trade, to support confidence and investment
  • Review fiscal policy to react in case of a downturn and prioritise investment
  • Implement reforms to boost long-term productivity and opportunities for all
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SLIDE 3

Global growth may be peaking and is less synchronised

3

GDP growth is dispersed World GDP growth plateaus

Note: Right panel: triangles show annual projections for 2018 and 2019. Source: OECD Economic Outlook database.

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 3.0 2016 2017 Q2 2018 2018 2019 % y-o-y % y-o-y United States Euro area Japan 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 Q2 2016 2017 2018 % y-o-y % y-o-y

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SLIDE 4

Growth prospects have weakened

4

G-20 emerging economies G-20 advanced economies

Source: OECD Economic Outlook database.

1.4 1.6 1.8 2.0 2.2 2.4 1.4 1.6 1.8 2.0 2.2 2.4 2014 2015 2016 2017 2018 2019 September projections May projections % y-o-y % y-o-y 4.6 4.8 5.0 5.2 5.4 5.6 4.6 4.8 5.0 5.2 5.4 5.6 2014 2015 2016 2017 2018 2019 September projections May projections % y-o-y % y-o-y

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2017 2018 2019 2017 2018 2019 World 3.6 3.7 3.7 G-20 3.8 3.9 3.8 Australia 2.2 2.9 3.0 Argentina 2.9

  • 1.9

0.1 Canada 3.0 2.1 2.0 Brazil 1.0 1.2 2.5 Euro area 2.5 2.0 1.9 China 6.9 6.7 6.4 Germany 2.5 1.9 1.8 India1 6.7 7.6 7.4 France 2.3 1.6 1.8 Indonesia 5.1 5.2 5.3 Italy 1.6 1.2 1.1 Mexico 2.3 2.2 2.5 Japan 1.7 1.2 1.2 Russia 1.5 1.8 1.5 Korea 3.1 2.7 2.8 Saudi Arabia

  • 0.7

1.7 2.6 United Kingdom 1.7 1.3 1.2 South Africa 1.2 0.9 1.8 United States 2.2 2.9 2.7 Turkey 7.4 3.2 0.5

OECD Interim Economic Outlook projections

5

Real GDP growth revised slightly down

Year-on-year, %. Arrows indicate the direction of revisions since May 2018.

Note: Difference in percentage points based on rounded figures. Dark green and dark orange for, respectively, upward and downward revisions of 0.3 percentage points and more. Light green and light orange for, respectively, upward and downward revisions of less than 0.3 percentage points. The European Union is a full member of the G-20, but the G-20 aggregate only includes countries that are also members in their own right.

  • 1. Fiscal years starting in April.
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SLIDE 6

Trade tensions are beginning to bite

6

Trade growth has slowed

World merchandise exports, volume

Export orders have worsened

Global

Note: Left panel: Seasonally-adjusted, in USD at constant prices. Right panel: Data normalised over the 2004-2018 period. All orders refer to the composite PMI (manufacturing and services). Source: CPB; Markit; and OECD calculations.

0.0 0.5 1.0 1.5 2.0 0.0 0.5 1.0 1.5 2.0 2016 2017 2018 % q-o-q % q-o-q

  • 0.6
  • 0.4
  • 0.2

0.0 0.2 0.4 0.6 0.8

  • 0.6
  • 0.4
  • 0.2

0.0 0.2 0.4 0.6 0.8 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 All orders Manufacturing export orders Normalised 3-month moving average

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SLIDE 7
  • 60
  • 50
  • 40
  • 30
  • 20
  • 10

10 20

  • 60
  • 50
  • 40
  • 30
  • 20
  • 10

10 20 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Total To China % y-o-y % y-o-y

New trade restrictions: Targeted sectors take a hit

US exports of vehicles US imports of steel articles

7

Note: Percentage changes in USD value. Source: United States International Trade Commission; and OECD calculations.

  • 40
  • 30
  • 20
  • 10

10 20 30

  • 40
  • 30
  • 20
  • 10

10 20 30 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Total From China % y-o-y % y-o-y

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SLIDE 8

Investment growth is too weak to support productivity gains

8

Note: Right panel: Labour productivity growth rates, annual averages. Source: OECD Economic Outlook database; and OECD calculations.

Productive capital stock growth Productivity growth

  • 0.5

0.0 0.5 1.0 1.5 2.0

  • 0.5

0.0 0.5 1.0 1.5 2.0 United States Euro area Japan % y-o-y % y-o-y 2000-2007 2015-2017 2017Q2-2018Q2

  • 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 2002 2004 2006 2008 2010 2012 2014 2016 United States Euro area Japan % y-o-y % y-o-y 2017

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5 10 15 20 25 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q2 % Unemployment Wider unemployment +6pp +8pp 72 73 74 75 76 1 2 3 4 5 6 7 8 9 10 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q2 % % Unemployment (lhs) Labour force participation (rhs) 2008-2018: -2pp

Note: Unemployment and wider unemployment rates among active labour force aged 15-64 years. Labour force participation rate among population aged 15-64 years. Wider unemployment rate refers to U6 unemployment and includes unemployed, involuntary part-time workers and marginally attached workers. Source: OECD Short-Term Labour Market statistics; National Labour Force Surveys; and OECD calculations.

Unemployment is falling but too many people remain out of employment

9

Euro area

Unemployment, involuntary part-time work and marginally attached workers

United States

Unemployment and labour force participation rates

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SLIDE 10

Wage growth lags behind pre-crisis levels in some countries

10

Wage growth

Average annual change in real wages

Note: 2018H1 for year-on-year growth in % over 2017H1. Growth rates are annualised. Source: OECD Economic Outlook database; and OECD calculations.

  • 0.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

  • 0.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 United States Japan Germany France United Kingdom % y-o-y % y-o-y 2000-2007 2015-2017 2018H1

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SLIDE 11

RISKS ARE INTENSIFYING, UNCERTAINTY IS WIDESPREAD

11

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SLIDE 12

An escalation in trade restrictions would harm investment, growth and jobs

Note: The business sector corresponds to ISIC Rev.3 Divisions 10 to 74. Source: Preliminary estimates based on OECD Inter-Country Input-Output Database; OECD Annual National Accounts Database; OECD Structural Analysis (STAN) Database; OECD Trade in Employment Database; World Input-Output Database (WIOD); and OECD calculations.

12

3 6 9 12 15 10 20 30 40 50 DEU KOR ESP ITA FRA GBR RUS ZAF CAN TUR IDN MEX IND AUS CHN JPN USA BRA million % Share of business sector jobs (lhs) Number of jobs (rhs)

Jobs dependent on foreign final demand

2015 or latest available

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SLIDE 13

Rising US rates and home-grown imbalances create turbulence in some EMEs

13

Exchange rates

vis-à-vis USD

Note: Data are indexed to 01-Jan-2018. Data as of 18 September 2018. Source: Thomson Reuters; and OECD calculations.

TUR: -41% ARG: -53% 40 50 60 70 80 90 100 110 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Argentina Brazil South Africa Turkey India China Jan 18 = 100 Depreciation against USD

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SLIDE 14

Emerging markets with external imbalances are more vulnerable

External debt

14

Current account balance

10 20 30 40 50 60 70 80 90 10 20 30 40 50 60 70 80 90

CHN IND PHL THA BRA IDN RUS ARG MEX COL ZAF TUR CHL MYS POL HUN

2017 1995 % of GDP % of GDP

Note: Gross external debt is the outstanding amount of those actual current, and not contingent, liabilities that require payment of principal and/or interest by the debtor at some point(s) in the future and that are owed to nonresidents by residents of an economy. Source: IMF Balance of Payments and International Investment statistics; and OECD calculations.

  • 10
  • 5

5 10 15

  • 10
  • 5

5 10 15 THA HUN MYS RUS CHN POL PHL BRA CHL MEX IDN IND ZAF COL ARG TUR 2017 1995 % of GDP % of GDP

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SLIDE 15
  • 0.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

  • 0.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 2014 2015 2016 2017 2018 Italy Spain Portugal % %

15

UK-EU trade relationship

Exports

Note: Left panel: Data as of 2016 for services and 2017 for goods. Exports and GDP of the European Union excludes those of the UK. Source: OECD International Trade in services statistics; UN Comtrade database; OECD Economic Outlook database; Thomson Reuters; and OECD calculations.

Political risks could hamper Europe’s growth and social cohesion

Government bond yields

2-year yields

2 4 6 8 10 12 14 16 Goods Services United Kingdom World excl. EU EU % of GDP 5 10 15 20 25 30 35 Goods Services European Union (rhs) World excl. UK UK % of GDP

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16

Change in total debt

2005-2017

Note: Left panel: *Total debt levels, 2017 or latest available. **EMEs excluding China. Private debt ratios shown are computed on a consolidated basis except for Canada, Japan and the United States for which consolidated data are not available. Public debt ratios are based on the national accounts definitions except for EU countries where debt ratios based on Maastricht criteria are shown. Data for China and EMEs are credit. Source: OECD National Accounts database; Bank for International Settlements; OECD Economic Outlook database; Thomson Reuters; and OECD calculations.

Ten years after the crisis, financial risks have built up again

Equity prices

50 100 150 200 250 300 350 50 100 150 200 250 300 350 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 S&P 500 NASDAQ EuroStoxx Nikkei 225 Jan-2007 = 100 Jan-2007 = 100

  • 200
  • 100

100 200 300 400 500 600

  • 40
  • 20

20 40 60 80 100 120 Households Non-financial corporates Private sector (EMEs) Government 2017* total debt (rhs) % pts of GDP % of GDP

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SLIDE 17

POLICIES SHOULD AIM TO ENHANCE RESILIENCE, PRODUCTIVITY AND INCLUSIVENESS

17

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SLIDE 18

The monetary policy stance in major economies is appropriate

Inflation in major advanced economies

Consumer price inflation, excluding food and energy

Note: Core inflation excludes energy and food products and refers to harmonised data for the euro area. Inflation numbers affected by the effects of the 2014 tax hike in Japan are not shown. Source: OECD Main Economic Indicators Database.

18

  • 0.5

0.0 0.5 1.0 1.5 2.0 2.5

  • 0.5

0.0 0.5 1.0 1.5 2.0 2.5

2015 2016 2017 2018 United States Japan Euro area

% %

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SLIDE 19
  • 5
  • 4
  • 3
  • 2
  • 1

1 2 3 4 5

  • 5
  • 4
  • 3
  • 2
  • 1

1 2 3 4 5 United States Euro area Japan % pts of GDP % pts of GDP

19

Note: Left panel: The fiscal stance is measured as the underlying primary balance, in % of potential GDP. Right panel: Public debt based

  • n the national accounts definition except for EA countries where public debt based on Maastricht criteria is shown. Therefore, debt

numbers are not fully comparable between EA and non-EA countries. Source: OECD Economic Outlook database; and OECD calculations.

Change in the fiscal stance

2017-2019, projected

Fiscal policies should avoid being procyclical and should focus on the long term

  • 2.5
  • 2.0
  • 1.5
  • 1.0
  • 0.5

0.0 0.5 1.0

  • 2.5
  • 2.0
  • 1.5
  • 1.0
  • 0.5

0.0 0.5 1.0 United States Euro area Japan % pts of potential GDP % pts of potential GDP Easing Tightening

Change in public debt

2017-2019, projected

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SLIDE 20

Fiscal space is uneven: Investment should be prioritised

20

Note: Public debt based on the national accounts definition except for EA countries where public debt based on Maastricht criteria is shown. Therefore, debt numbers are not fully comparable between EA and non-EA countries. Source: OECD Economic Outlook database; and OECD calculations.

Strong case for more public investment in some countries Other countries could benefit but lack fiscal space Priorities: rebuild buffers and invest in future growth Coordinated fiscal action yields larger gains

50 75 100 125 150

  • 1.0
  • 0.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

Canada Germany France United Kingdom United States Italy

Nominal GDP growth rate minus 10-year yield on government bonds, % pts More fiscal space Higher returns to public investment 150 200 250

Japan

Public debt, % of GDP

2007 2018 2007 2018 2018 2018 2018 2018 2018 2007 Note: Data for 2018 are projections. Public debt based on the national accounts definition except for EU countries where public debt based

  • n Maastricht criteria is shown. Therefore, debt numbers are not fully comparable between EU and non-EU countries.

Source: OECD Economic Outlook database; and OECD calculations.

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SLIDE 21

21

Banks are better capitalised

Regulatory Tier 1 capital to risk-weighted assets

Source: IMF Soundness Indicators database; ECB Statistical Data Warehouse, European Central Bank; and OECD calculations.

5 10 15 20 25 5 10 15 20 25 AUS CAN ESP USA ITA PRT FRA BEL DEU GBR IRL % % 2017 2008

Ten years later: Banks are stronger but much remains to be done

Financial fragilities remain in the euro area

Share of own-government securities in bank holdings of euro area sovereign debt

10 20 30 40 50 60 70 80 90 100 20 40 60 80 100 ITA FRA GRC ESP PRT DEU AUT BEL NLD FIN IRL % 2018 2008 %

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SLIDE 22

22

Note: The dotted line shows a linear projection based on the average annual growth rate of OECD potential GDP per capita in the 2000- 2007 period. Sources: OECD Economic Outlook database; and OECD calculations.

Real GDP per capita, OECD

The real economy has not regained the ground lost during the crisis

100 105 110 115 120 125 130 135 140 100 105 110 115 120 125 130 135 140 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Actual GDP per capita Pre-crisis trend potential GDP per capita, 2000-2007 Index 2000 = 100 Index 2000 = 100

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SLIDE 23

23

Education, skills and labour policies are key

Share of priority recommendations followed by action

Note: Refers to reform priorities identified in Going for Growth in 2017 for the 35 OECD economies, Argentina, Brazil, China, Colombia, Costa Rica, India, Indonesia, Russia and South Africa. Sources: OECD Going for Growth 2018; and OECD calculations.

Focus on people to raise well-being, improve

  • pportunities and address political tensions

10 20 30 40 50 60 70 80 90 100 10 20 30 40 50 60 70 80 90 100

Alignment of higher education to labour market needs Support for disadvantaged schools and students Reduction in the tax wedge on low-skilled workers Vocational education, training and apprenticeships Improved active labour market policies Access to quality childcare and early education

% %

Fully implemented or in process of implementation No action taken in 2017

Higher reform effort Lower reform effort

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SLIDE 24

Key messages

24

Global growth is peaking and is less synchronised

  • Global growth should plateau at 3.7% in 2018 and 2019
  • The job market has recovered but slack remains and wage growth is disappointing

Risks are intensifying, uncertainty is widespread

  • Rising trade restrictions risk hurting jobs and living standards
  • Tightened financial conditions increase stress on a number of EMEs
  • Political risks could prevent Europe from thriving
  • Ten years after the crisis, some financial risks have built up again

Policies should aim to enhance resilience, productivity and inclusiveness

  • Reduce policy uncertainty, especially for trade, to support confidence and investment
  • Review fiscal policy to react in case of a downturn and prioritise investment
  • Implement reforms to boost long-term productivity and opportunities for all