OECD Economic Outlook, Volume 2002 Issue 2
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OECD Economic Outlook, Volume 2002 Issue 2

Twice a year, the OECD Economic Outlook analyses the major trends that will mark the next two years. The present issue covers the outlook to the end of 2004 and examines the economic policies required to foster high and sustainable growth in member countries. Developments in selected major non-OECD economies are also evaluated in detail.

In addition to the themes featured regularly, this issue contains four analytical chapters addressing the following important questions: the deterioration in budgetary positions in most OECD countries, raising the labour force participation of older workers,  the benefits that OECD countries could achieve from undertaking reforms to promote product market competition, and inflation rates in some of the larger, slow-growing economies have not declined sufficiently to offset higher rates elsewhere in the euro area.

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OECD

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Activity in the first half of 2002 was exceptionally strong, as the flow-through effects of high export prices fuelled domestic demand. But this stimulus has weakened markedly, and growth is likely to have fallen substantially in the second half. The pace of expansion should pick up again next year and into 2004 in line with global recovery, though not so much as to lead to overheating.

This mild slowdown, with the new less-aggressive inflation target, should stay the central bank’s hand until a robust recovery is clearly in place. After that, interest rates would need to rise only slightly to return monetary conditions to neutral. The fiscal stance remains appropriate but there are substantial challenges to maintaining surpluses over the medium term. Expenditure slippage may also be harder to resist now that the government has not renewed its three-year spending cap.

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