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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The economy has weathered the downturn relatively well and the recovery should compare favourably with that of the other major European countries. Strong household demand has been a key element, supported by low interest rates and rising housing wealth. Rapidly growing public expenditure is providing additional support to activity and will continue to do so, being gradually supplemented by growing external demand and a revival of investment.

Monetary and fiscal policy have provided a stable macroeconomic environment to date. However the current surge in house prices creates a dilemma for monetary policy as to whether to act before any potential bubble becomes a risk to macroeconomic stability. The large increases in public expenditure, needed to address deep-seated structural problems in education, health and transport, are not expected to break the authorities’ fiscal rules. However the government faces a challenge in ensuring that the higher spending is fully translated into better public services.

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