OECD ECONOMIC OUTLOOK Policies to Promote Sustained and Inclusive - - PowerPoint PPT Presentation

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OECD ECONOMIC OUTLOOK Policies to Promote Sustained and Inclusive - - PowerPoint PPT Presentation

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OECD ECONOMIC OUTLOOK Policies to Promote Sustained and Inclusive Growth The Hague, Netherlands January 26, 2016 Catherine L. Mann OECD Chief Economist http://www.oecd.org/economy/economicoutlook.htm Main Themes Global trade

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The Hague, Netherlands January 26, 2016

Catherine L. Mann

OECD Chief Economist

OECD ECONOMIC OUTLOOK Policies to Promote Sustained and Inclusive Growth

http://www.oecd.org/economy/economicoutlook.htm

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Main Themes

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Global trade weakness—harbinger of global slowdown? Focus on China – real vs financial linkages Stronger investment is key – what holds it back? What policies to support more robust, inclusive growth? What are the costs of policy inaction?

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Global GDP growth: modest projected upturn

(smooth slowdown in China, more robust investment in advanced economies)

3

Global GDP

  • 1. Moving nominal GDP weights using purchasing power parities. 2. Fiscal years starting in April.

Source: OECD November 2015 Economic Outlook database.

Real GDP

Annual percentage changes

2014 2015 2016 2017 World1 3.3 2.9 3.3 3.6 United States 2.4 2.4 2.5 2.4 Euro area 0.9 1.5 1.8 1.9 Japan

  • 0.1

0.6 1.0 0.5 China 7.3 6.8 6.5 6.2 India2 7.3 7.2 7.3 7.4 Brazil 0.2

  • 3.1
  • 1.2

1.8

Netherlands 1.0 2.0 2.3 2.7

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Dramatic slowdown in global trade growth

Harbinger of slower growth or set to rebound?

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Import volumes

Source: OECD November 2015 Economic Outlook database.

Global trade volumes and GDP

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Netherlands robust export performance

bucking the general trend

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10 20 30 40 50 60 70 80 90 1982 1986 1990 1994 1998 2002 2006 2010 2014

  • B. European Union is the key goods export market

As a percentage of GDP

BRIICS European Union United States Other Total 90 95 100 105 110 2007 2008 2009 2010 2011 2012 2013 2014 2015

  • A. Export performance

Index 2007 = 100

Netherlands France Germany United Kingdom United States OECD

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China import growth particularly weak

China’s growth increasingly difficult to forecast

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China: Real GDP and import volumes

Note: 2015 is change in the first three quarters vs 2014. Import volumes are deflated based on OECD estimates. Nominal imports during the first three quarters of 2015 were down 8 per cent. Sources: OECD November 2015 Economic Outlook database.

GDP forecasts for China and number

  • f forecasters

Sources: Bloomberg.

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China: renewed financial turmoil

Some technical factors, but also expectations, herding

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70 80 90 100 110 120 130 140 150 6,1 6,2 6,3 6,4 6,5 6,6 6,7 6,1 6,2 6,3 6,4 6,5 6,6 6,7 Offshore Onshore

CSI 300 index (rebased, Jan 5 2015 = 100) Yuan/USD exchange rate

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Worries about the pace of China slowdown

But some bright(ish) spots, responding to policies

8 49 50 51 52 53 54 55 56 49 50 51 52 53 54 55 56 NBS Caixin

Services PMI Manufacturing PMI

46 47 48 49 50 51 52 46 47 48 49 50 51 52 NBS Caixin

  • 10

10 20 30 40 50 60 70 1.700.000 1.800.000 1.900.000 2.000.000 2.100.000 2.200.000 2.300.000 2.400.000 jan-15 mrt-15 mei-15 jul-15 sep-15 nov-15 QoQ annualised (%) Units Units

  • 8
  • 6
  • 4
  • 2

2 4 6 8 10

Car sales Property prices (yoy % chg)

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Contagion is unpredictable; Yuan/$ appears key

9 6,0 6,1 6,2 6,3 6,4 6,5 6,6 6,7 10 15 20 25 30 35 40 45

CBOE VIX Yuan/USD

Yuan/USD exchange rate and VIX index

  • f US equity price volatility

Market returns to date in 2016

(in USD terms; per cent)

  • 18
  • 16
  • 14
  • 12
  • 10
  • 8
  • 6
  • 4
  • 2
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EMEs more affected by risk aversion and RMB

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EMBI+ Composite stripped spread

275 300 325 350 375 400 425 450 475 275 300 325 350 375 400 425 450 475

b. b. p.

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GDP growth impact of a domestic demand shock in China plus financial spillovers

Two percentage point decline in the growth rate for two years, 10% reduction in global equity prices and a 20 basis point increase in the equity risk premium in all countries

Simulation: Moderate effect of a sharper Chinese slowdown, plus financial spillovers

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Consumption in the Advanced countries

Tighter labour markets & new policies should yield healthier wage growth, but haven’t yet

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Unemployment rate

Source: OECD November 2015 Economic Outlook database.

Compensation per employee

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75 80 85 90 95 100 105 110 115 120 75 80 85 90 95 100 105 110 115 120 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Real fixed investment Index 2008 Q1 = 100

Netherlands United States Japan Euro area OECD commodity exporters

Real investment in the Advanced countries

  • verall sluggish, but varied prospects; Netherlands is strong

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Real fixed investment

  • 1. OECD commodity exporters includes Australia, Canada, Chile, Mexico and Norway.

Source: OECD November 2015 Economic Outlook database.

Real Fixed Investment Index 2008q1 = 100

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Euro area investment impaired by credit channel

Non-performing loans, evergreening

14

Combined debt of households and non-financial corporations

Source: Eurostat; OECD National Accounts Database.

Bank credit to non-financial corporations

Year-on-year percentage change

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Netherlands exemplifies risk aversion

non-financial corporations, yielding external surplus

15

  • 2

2 4 6 8 10 12 1982 1986 1990 1994 1998 2002 2006 2010 2014

  • B. ... owing to non-financial corporations

As a percentage of GDP

Financial corporations Non-financial corporations Corporations

  • 10
  • 5

5 10 15 20 25 1982 1986 1990 1994 1998 2002 2006 2010 2014

  • A. Net savings of corporations are large...

As a percentage of GDP

Corporations Households General government Current account balance

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Collective action on public investment

Could support growth without worsening debt ratios

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1st year effects of a ½ per cent of GDP public investment stimulus by all OECD economies

Change from baseline

Note: Simulation using the NiGEM model, based on a two-year increase in the level of government investment equivalent to ½ per cent of GDP per annum in all OECD countries. The euro area figures are a weighted average of Germany, France and Italy. Source: OECD calculations.

Collective action, quality projects, and structural policy efforts are required to realise these gains

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Source: OECD calculations.

Note: The chart illustrates the pace of reform in previous periods captured by the indicator of reform responsiveness (RRI) and the hypothetical level of responsiveness in 2015 based on two different scenarios. See the Going for Growth 2010 issue for an explanation on RRI, and the main text on how the hypothetical RRI is computed. Following Ollivaud and Schwellnus (2013), the euro area surplus economies are defined as the euro area members for which the current account surplus was

  • n average larger than 1% of GDP over the period 2000-05 (Austria, Belgium, Germany, Finland, Luxembourg and the Netherlands). The euro area deficit

economies include the remaining members of the OECD euro area (France, Estonia, Greece, Ireland, Italy, Portugal, the Slovak Republic, Slovenia and Spain).

0,1 0,2 0,3 0,4 0,5 0,6 0,7

Euro area deficit economies Euro area surplus economies Other EU economies Non-EU Among advanced economies

2011-12 2013-14 2015 (current pace)

The pace of reform continues to slow

Fully implemented measures as a share of Going for Growth reform recommendations

Outlook depends on structural policy ambition

but pace of improvement has stalled

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Policies to support productivity are key

Netherlands well situated, but could trade more with frontier firms

Estimated frontier spillover (% pa) associated with a 2% point increase in MFP growth at the global productivity frontier

0,0 0,1 0,2 0,3 0,4 0,5 Trade with the Frontier Participation in GVCs Efficiency of skill allocation Managerial quality Business R&D Netherlands

Minimum (Italy) Minimum (Italy) Minimum (Austria) Maximum (Finland) Maximum (Belgium) Maximum (Sweden) Maximum (Canada) Minimum (Australia) Minimum (Canada) Maximum (Belgium)

Globalisation Reallocation Knowledge-Based Capital

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Costs of Inaction? Slowing potential output

Economies cannot make good on promises—to old, young, investors— and inflation remains below target

Source: June 2015 OECD Economic Outlook database.

Growth Potential Output per capita; and contributions average annual percentage change of potential GDP per capita

Note: Consumer prices excluding food and energy. The private consumption deflator is used for the United States. For Japan, excludes the estimated impact of the consumption tax increases in April 2014 and April 2017. Source: OECD November 2015 Economic Outlook database.

Core inflation

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Summary

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Despite recent weakness, global trade and GDP are projected to recover in 2016-17 Revived investment and wage growth from effective policies underpin the projections Renewed ambition on structural reforms need to support monetary and fiscal efforts Collective action, including infrastructure spending & regulatory harmonization (esp Europe) would help Costs of inaction: Further slowing of potential

  • utput and prospects