OECD Economic Outlook

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The OECD Economic Outlook is the OECD’s twice-yearly analysis of the major economic trends and prospects for the next two years. Prepared by the OECD Economics Department, the Outlook puts forward a consistent set of projections for output, employment, government spending, prices and current balances based on a review of each member country and of the induced effect on each of them on international developments.

Coverage is provided for all OECD member countries as well as for selected non-member countries. Each issue includes a general assessment, chapters summarizing developments and providing projections for each individual country, three to five chapters on topics of current interest such as housing, and an extensive statistical annex with a wide variety of variables including general debt.
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OECD Economic Outlook, Volume 2011 Issue 1

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25 May 2011
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The OECD Economic Outlook is the OECD’s twice-yearly analysis of the major economic trends and prospects for the next two years.  Prepared by the OECD Economics Department, the Outlook puts forward a consistent set of projections for output, employment, prices and current balances based on a review of each member country and of the induced effect on each of them on international developments.

Coverage is provided for all OECD member countries as well as for selected non-member countries. Each issue includes a general assessment, chapters summarising developments and providing projections for each individual country, three to five chapters on topics of current interest, and an extensive statistical annex. Subscribers to the print edition also have access to an online edition, published on the internet six to eight weeks prior to the release of the print edition. In addition to the usual macroeconomic and country assessments and statistical annex with projection data, this issue of the OECD Economic Outlook also includes special chapters on the persistence of high unemployment and drivers and vulnerabilities associated with international capital flows.

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  • Summary of projections
  • Seeking a Durable Recovery for All
    The global recovery is becoming self-sustained and more broad based. The recovery is taking place at different speeds, between advanced and emerging economies, but also within the first group of countries. Unemployment remains high across most of the OECD countries. In most, headline inflation has risen strongly, and expectations are also drifting up; however, underlying inflation seems likely to edge up only slowly. Vibrant domestic demand growth, negative supply shocks and strong capital inflows in non-OECD economies are generating inflationary pressures prompting policy restraint that could slow the recovery.
  • General Assessment of the Macroeconomic Situation
    The recovery from the deepest recession in decades is becoming more broadly based. Global growth has picked up since the soft patch in the middle of last year and activity is driven increasingly by strengthening private final demand. However, progress remains uneven across economies. In the near term, the adverse supply-side shocks from high commodity prices and the earthquake in Japan and its aftermath are damping activity somewhat and pushing up headline inflation. Such effects should fade from the latter half of this year, provided commodity prices stabilise and inflation expectations do not become unanchored. Financial conditions continue to improve and monetary policy remains accommodative in the OECD economies, though increasingly less so in emerging market economies where spare capacity has been largely absorbed.
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  • Expand / Collapse Hide / Show all Abstracts Developments in individual OECD countries

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    • United States
      Supported by accommodative monetary policy and financial conditions the economy continues to recover gradually from the recession that ended a year and a half ago. Nevertheless, the adverse effects of the crisis are still being felt, particularly in the form of still-high unemployment. Output growth should gain speed and the unemployment rate should continue to decline through 2012 though the pace of expansion will be limited by household deleveraging and initial steps at fiscal consolidation.
    • Japan
      The 11 March 2011 Great East Japan Earthquake triggered the country’s worst disaster of the postwar era. The immediate impact has been to reduce output, although this is likely to be reversed by a strong recovery in the second half of 2011 led by reconstruction efforts. However, deflationary pressures are likely to continue through 2012, with unemployment remaining above its pre-2008 crisis level.
    • Euro area
      The recovery in domestic demand is gaining momentum and exports continue to support growth. Confidence is strengthening and financial conditions have improved. The pace of recovery is likely to be dampened by required fiscal consolidation, on-going private sector balance sheet adjustment and higher energy prices. Headline inflation has risen sharply due to energy price increases and higher indirect taxes, but underlying price pressures remain weak, reflecting high unemployment and significant spare capacity. The sovereign debt crisis and persisting imbalances within the euro area are a major risk to the outlook.
    • Germany
      The export-led recovery is continuing, with domestic demand, notably business investment and private consumption, increasingly contributing to growth. Employment continues to rise and, coupled with wage increases, should support private consumption growth over the next couple of years. Growth is projected to slow somewhat in 2012 as the output gap closes during that year.
    • France
      A modest recovery is underway, but the recession will leave lasting traces. Real GDP is projected to grow by over 2% in both 2011 and 2012, led by business investment and exports. The unemployment rate is set to decline slightly towards 9% by the end of 2012. Substantial spare capacity is expected to limit any second-round effects of rising import prices, and underlying and headline inflation should converge to about 1½ per cent in 2012.
    • Italy
      Italy’s slow recovery is projected to continue with growth strengthening somewhat to around 1½ per cent in 2012. Buoyant world demand will stimulate the export sector and investment growth should re-accelerate too. Unemployment will fall only slowly, partly because the initial improvement in labour demand will be absorbed by reduced use of short-time working. After picking up quite sharply recently, headline inflation is expected to fall back as the impact of increases in energy and food prices diminishes.
    • United Kingdom
      The recovery paused in end-2010 and growth is projected to remain weak in 2011, despite rising exports and business investment, but to pick up in 2012. Above-target inflation, driven by tax increases and commodity prices, and needed fiscal consolidation, will hold back private consumption and public spending during 2011-12. Inflation will remain above the 2% target through 2011 and most of 2012, but is set to fall when the effects of the tax increases and rising import prices wane. As inflation falls, private consumption should start to recover. Unemployment is likely to increase in the short term, reflecting the slow recovery and rising labour force participation.
    • Canada
      Economic activity rebounded vigorously through the winter, supported by strengthening external demand and a healthy rate of business investment. Growth is projected to moderate somewhat over the near term, as international supply chains suffer from the effects of the Japanese disaster, highly indebted households pare back spending and housing markets soften, but then gather speed again as unemployment recedes and the global recovery gains traction. Rising corporate profits and improving credit conditions should buttress robust business capital spending as a key driver of growth.
    • Australia
      The Australian economy is set to rebound after the disruptions caused by major natural disasters in early 2011. Growth, driven by historically high terms-of-trade, should accelerate from 3% in 2011 to 4½ per cent in 2012. Unemployment is projected to fall, although the remaining slack in the economy will mute the risk of inflation pressures.
    • Austria
      Investment growth picked up strongly in the second half of 2010 and will continue to support the export-led recovery. The labour market continues to improve but large increases in inflation will weigh on consumption. After a strong first quarter of 2011, growth is projected to slow down to its trend rate.
    • Belgium
      The recovery will become more balanced as private consumption and investment strengthen, although growth will be moderated by a more restrictive fiscal policy stance and the gradual withdrawal of monetary policy support. Automatic wage indexation may prolong the period of relatively high consumer price inflation as high global commodity prices are passed through to wage costs.
    • Chile
      The Chilean economy is growing strongly, driven by dynamic domestic demand with support from high copper prices. GDP growth is expected to reach 6½ per cent in 2011 and gradually slow towards 5% in 2012, as monetary and fiscal policies tighten.
    • Czech Republic
      Despite ongoing fiscal tightening real GDP growth is expected to reach 2.4% this year, driven primarily by strong foreign demand. Growth will broaden and rise further to 3.5% in 2012, as consumption picks up. Headline inflation will spike temporarily due to scheduled indirect tax increases in 2012, but core inflation will remain low given the remaining output gap.
    • Denmark
      The recovery is expected to gain strength gradually as world trade expands, and to become more broad-based as private domestic demand improves. Given the remaining economic slack, core inflation is projected to be subdued.
    • Estonia
      The strong export-driven recovery is projected to continue in 2011, reflecting the positive external outlook and improved competitiveness achieved through flexible wage adjustment and restructuring measures. Private consumption will gain momentum in 2012, as unemployment continues to fall, the real wage bill increases, and more bad debt cases are resolved. Despite high headline inflation due to energy and commodity price shocks, no second round effects are projected and core inflation is expected to remain below historical averages.
    • Finland
      The recovery is gathering further strength, boosted by strong exports, private consumption and residential investment. Although external demand in traditional markets is likely to remain robust, growth is projected to slow somewhat as private consumption and residential investment soften as higher commodity prices, taxes and interest rates bite into real incomes. Unemployment will continue to decline as employment grows and the labour force shrinks with ageing.
    • Greece
      The economy is suffering a serious recession in the context of the sizeable, but vital, fiscal retrenchment. A return to sustained positive growth is projected for 2012 as external demand strengthens, competitiveness improves and the far-reaching structural reforms implemented in response to the fiscal crisis start to take hold. Substantial economic slack and rising unemployment will keep inflation pressures subdued. The outlook is subject to important, mostly downside risks.
    • Hungary
      The recovery in economic activity continues, driven mainly by inventory accumulation and external demand. Growth is projected to pick up, supported by vigorous exports and gradually improving domestic demand. Headline inflation is expected to moderate towards the medium-term target of the central bank once the effects of higher global commodity prices fade.
    • Iceland
      After a period of severe adjustment to eliminate imbalances and restructure the banking system, the Icelandic economy is projected to begin to grow again in 2011. The recovery is expected to be led by private investment in large energy-intensive projects and strengthening private consumption expenditure. There is considerable uncertainty about the impact of the rejection of the Icesave Agreement on the normalisation of international financial relations and on the attractiveness of Iceland for investment.
    • Ireland
      Ireland is continuing to undertake a comprehensive and vital adjustment programme to reduce its macroeconomic imbalances and restore its banking system to health. Despite robust export growth, weak domestic demand and ongoing fiscal consolidation have prevented an economic recovery from unfolding so far. As domestic demand stabilises, a modest upturn of output is expected in the course of 2011, with some acceleration in 2012. The unemployment rate is likely to stay high, and core deflation to continue.
    • Israel
      Growth in real GDP this year should exceed that of 2010, but rising labour-supply constraints and further interest rate hikes will temper activity in 2012. Annual inflation will remain above the 1-3% target band until the beginning of next year.
    • Korea
      After slowing during 2010, growth picked up in early 2011, driven by the acceleration in world trade. Inflation also increased significantly, due in part to higher oil and commodity prices. Output growth is projected to moderate during 2011 and 2012, resulting in annual growth rates of around 4½ per cent and helping to bring inflation back into the central bank’s target range of 2 to 4%.
    • Luxembourg
      Strong exports and a robust expansion of domestic demand are driving the continuing recovery. Consumption and investment are anticipated to continue to pick up during 2011, while financial and business services exports will remain strong. Although growth is likely to be higher than in neighbouring countries, uncertainties remain around the post-crisis development of the key financial sector.
    • Mexico
      The Mexican economy has embarked on a strong recovery from the recession of 2008-09. Initially driven by exports, activity is expected to be increasingly supported by domestic demand. After a strong rise in 2010 to 5½ per cent, GDP growth will ease in 2011 (4½ per cent) and 2012 (3.8%), as the expansion of exports will normalise.
    • Netherlands
      The post-crisis recovery has been led by world trade and the rebuilding of stocks, but is set to become increasingly dependent on final domestic demand. Industrial production and capacity utilisation are close to pre-crisis levels, reviving business investment. On the other hand, private consumption is likely to remain subdued due to low wage growth and fiscal and monetary tightening.
    • New Zealand
      A devastating second earthquake has derailed a recovery already weakened by exchange-rate appreciation and private-sector efforts to reduce high levels of mortgage debt. Reconstruction and other one-offs will set the stage for a strong rebound in the second half of this year and into 2012.
    • Norway
      Norway has fully recovered from the global economic crisis. Growth is projected to rise through 2012 on the back of increasing private consumption and investment, despite stagnating oil and gas exports. Inflation has remained low so far, partly due to moderate wage rises, but the acceleration of output and increasing pressures on production capacity will lift it somewhat through the projection period.
    • Poland
      The Polish economy is projected to expand by close to 4% in 2011 and 2012 thanks to strong public investment in 2011, partly related to EU-financed infrastructure projects and the 2012 football championships, a recovery in business investment in 2012 and robust private consumption.
    • Portugal
      The economy is expected to continue contracting in 2011 and most of 2012, as fiscal consolidation and deleveraging gather pace. Persistent domestic demand weakness will lead to lower inflation once the effects of more expensive oil and hikes in indirect taxes have dissipated. Exports should remain dynamic, underpinning the end of output losses towards the end of 2012 and a gradual reduction of the current account deficit. Unemployment is set to rise further.
    • Slovak Republic
      The economy rebounded strongly in 2010, and is expected to continue to do so in 2011, driven by strong external demand and business investment. Household consumption, however, will be damped by fiscal consolidation and persistent high unemployment. Growth should be more balanced in 2012, not least due to more favourable labour market developments.
    • Slovenia
      The recovery continues to be mainly supported by external demand and restocking. Growth should gradually strengthen as private investment and consumption gain momentum. The unemployment rate is projected to peak by mid-2011 as activity picks up. Inflationary pressures stemming from a surge in global food and energy prices should peter out, and persistent economic slack will contain underlying inflation pressures.
    • Spain
      Economic growth is projected to strengthen gradually, reaching 1% in 2011 and 1½ per cent in 2012, as the damping impact of downsizing in residential construction diminishes and the international environment improves. As growth picks up, the unemployment rate will fall slowly to around 19% by end-2012. Consumer price inflation will tend to fall, once the effect of rising energy and food prices and the increase in the VAT rates drop out.
    • Sweden
      GDP has fully recovered its pre-crisis level. Vigorous growth is expected to continue as external demand remains solid, though at a more moderate pace than in recent quarters. Employment growth will also be robust, and accordingly the unemployment rate will continue to decline. However, as some spare capacity remains in the economy, core inflation should remain moderate.
    • Switzerland
      Economic growth is expected to remain firm in 2011 and 2012, driven by strong domestic demand. Growth will slow toward the end of 2012, progressively returning to its potential rate, as the output gap closes. Unemployment is projected to decline further while inflation will rise to slightly above 1% in 2012.
    • Turkey
      After approaching 9% in 2010, growth is projected to slow to 6.5% in 2011 and 5.3% in 2012, as credit conditions, broadly defined, become tighter. The current account deficit is projected to rise further, to 8.9% of GDP by 2012.
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    • Brazil
      Strong growth in the course of 2010 removed all slack from the Brazilian economy. Massive infrastructure spending will support strong domestic demand in the coming years. Inflationary pressures are therefore a threat, as labour markets will remain tight and the effects of the significant currency appreciation will dissipate.
    • China
      Tighter monetary conditions have reined in growth, which is projected to average around 9% in 2011-12. Inflation has continued to veer up, with the price of all demand components combined up by 6¾ per cent in the year to the first quarter of 2011. As excess demand in the economy is gradually eliminated and import prices stop rising, inflation should ease back in 2012. The current account surplus is set to fall to 4½ per cent of GDP (from over 10% in 2007), as result of slower export growth and higher commodity prices.
    • India
      Following a strong post-crisis rebound driven by a surge in private investment, growth slowed to a more sustainable pace towards the end of 2010. Going forward, growth will pick up somewhat, underpinned by buoyant corporate sentiment and demand for infrastructure spending. Tighter monetary policy and a modest reduction in the deficit will help cool demand somewhat. After moderating towards the end of 2010, inflation has veered up again and remains high. Moreover, inflationary pressures have become more generalised, with non-food prices accelerating.
    • Indonesia
      Economic growth is expected to accelerate above its potential rate in 2011, buttressed by low interest rates, and then to slow marginally in 2012. External demand will remain strong, and investment is projected to gain momentum. Underlying inflationary pressures are building.
    • Russian Federation
      Growth has picked up, supported by surging commodity prices, and domestic demand is expected to strengthen in the near term. Output is projected to grow by nearly 5% in 2011 and by 4½ per cent in 2012. As the effect of last year’s food price shock dissipates, disinflation should resume. The budget is projected to return to surplus this year, as revenues will exceed projections by a large margin due to higher-than-expected oil prices, but the non-oil deficit will remain large.
    • South Africa
      The recovery is expected to gain momentum this year, as strong external conditions and a resumption of employment growth support demand. Notwithstanding upward pressure from food and energy prices, the strong rand and the negative output gap should keep inflation within the Reserve Bank’s target range. Buoyant revenues are projected to shrink the budget deficit.
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  • Medium and Long-term Developments
    The recovery is projected to strengthen in the near term, but there are concerns about the longer-term legacy of the crisis, particularly because of the emergence of unsustainable fiscal imbalances as well as the possible damage to long-term growth prospects. Based on a technical exercise, this chapter considers macroeconomic prospects for OECD economies to the middle of the next decade and the challenges and the associated risks.
  • Persistence of High Unemployment
    Nearly two years after production began to recover from the worst recession to have hit OECD countries since the 1930s, the labour market situation remains a major preoccupation. At the end of 2010, the average OECD unemployment rate was still close to the historical peak reached during the crisis. In 12 OECD countries it remained two percentage points or more above the pre-crisis level, and even where the rise in joblessness was less severe, the recovery has been generally too weak so far to allow for a significant fall in unemployment (Figure 5.1). A main concern in countries most severely hit is that persistently high levels of unemployment – and a rising share of unemployed workers facing long spells without a job – will eventually result in widespread deterioration of human capital, discouragement and labour market withdrawal. The risk is strongest for youth and less skilled workers who have been disproportionately affected by the rise in unemployment.
  • Getting the Most Out of International Capital Flows
    Increasing international capital flows can support long-term income growth through a better international allocation of saving and investment. However, they can also make macroeconomic management more difficult, as currently being experienced by several emerging economies, because of the faster international transmission of shocks and the increased risks of overheating, credit and asset price boom-andbust cycles and abrupt reversals in capital inflows.
  • OECD at 50
    Progress in science is sometimes seen as a continuous increase in the set of accepted facts and theories. But, as shown by Kuhn (1962), periods of continuity are occasionally interrupted by the discovery of anomalies, which lead to a new paradigm, i.e. a new way of perceiving and analysing the subject of study. Even though the "dismal science" has never seen universal agreement on a single paradigm, a succession of paradigms can still be distinguished in the history of economic policymaking. Each paradigm defines "not only the goals of economic policy and the kind of instruments that can be used to attain them, but also the very nature of the problems they are meant to be addressing" (Hall, 1993, pp. 279).
  • Special chapters in recent issues of OECD Economic Outlook
  • Statistical Annex
    This annex contains data on key economic series which provide a background to the recent economic developments in the OECD area described in the main body of this report. Data for 2010 to 2012 are OECD estimates and projections. The data in some of the tables have been adjusted to conform to internationally agreed concepts and definitions in order to make them more comparable across countries, as well as consistent with historical data shown in other OECD publications. Regional aggregates are based on weights that change each period, with the weights depending on the series considered. For details on aggregation, see OECD Economic Outlook Sources and Methods.
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