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 2

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28 Nov 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. The Outlook puts forward a consistent set of projections for output, employment, prices, fiscal and current account balances.

Coverage is provided for all OECD member countries as well as for selected non-member countries. This issue includes a general assessment, chapters summarising developments and providing projections for each individual country and an extensive statistical annex.

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  • Editorial: The Policy Imperative: Rebuild Confidence
    The global economy has deteriorated significantly since our previous Economic Outlook. Advanced economies are slowing down and the euro area appears to be in a mild recession. Concerns about sovereign debt sustainability in the European monetary union are becoming increasingly widespread. Recent contagion to countries thought to have relatively solid public finances could massively escalate economic disruption if not addressed. Unemployment remains very high in many OECD economies and, ominously, long-term unemployment is becoming increasingly common. Emerging economies are still growing at a healthy pace, but their growth rates are also moderating. In these countries falls in commodity prices and the slower global growth have started to mitigate inflationary pressures. More recently, international trade growth has weakened significantly. Contrary to what was expected earlier this year, the global economy is not out of the woods.
  • General Assessment of the Macroeconomic Situation

    More than usual, world economic prospects depend on events, notably policy decisions related to the euro-area debt crisis and US fiscal policy. The nature and timing of many such events remain highly uncertain and the projection presented in this Economic Outlook therefore portrays a muddling-through case in the absence of decisive events.

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  • Expand / Collapse Hide / Show all Abstracts Developments in Individual OECD Countries

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    • United States

      The economic recovery has lost significant momentum, with mediocre labour market performance and weak sentiment exerting a drag on domestic demand, at a time when fiscal tightening is beginning to have traction. Although there have been some signs of healing in financial markets, equity market losses and declines in house prices have again weighed on household wealth. All of these factors will continue to restrain demand for some time, but gradual improvements in confidence and accommodative monetary policy should help bring about an acceleration in output growth after mid-2012.

    • Japan

      After a sharp contraction in the wake of the Great East Japan Earthquake in March 2011, the economy began to rebound in May 2011. Public and private reconstruction spending will drive the recovery through mid-2012, with growth of 2% for the year. As public reconstruction outlays wane, the expansion will be supported through 2013 by a pick-up in export growth that improves labour market conditions and boosts private consumption. Given the large output gap, deflationary pressures are likely to continue through 2013, with the unemployment rate remaining above its pre-2008 crisis level.

    • Euro Area

      The recovery has stalled as confidence has weakened and financial conditions have deteriorated as a result of the sovereign debt crisis. The momentum in domestic demand has waned and external demand is slowing sharply. Fiscal consolidation and adjustment of private sector balance sheets will continue to restrain demand growth. Unemployment will begin to rise again and there will be a wide margin of spare capacity. Inflation will fall, against the background of weak underlying price pressures. The announcement of the measures agreed at the October Euro Summit failed to restore confidence and needs to be followed up by swift mobilisation of adequate financial resources to ease contagion. To enhance fiscal credibility, euro countries should pursue consolidation plans set out in their Stability Programmes, while further monetary loosening is needed to help support activity. Provided that policy actions are sufficient to restore confidence gradually, activity should pick up somewhat from mid-2012. The main risks centre on the interactions of slow growth, sovereign debt and weaknesses in the banking system, as well as the ability of policymakers to find a credible solution to the debt crisis.

    • Germany

      The economy is facing a period of weakness reflecting a worldwide loss of confidence and lower world trade growth, which usually hits Germany more than others through weaker exports and investment. Economic activity is expected to recover gradually during 2012 as uncertainty declines and trade picks up. Growth rates may then rise above potential from around mid-2012, given the absence of underlying imbalances in household and corporate balance sheets and only moderate fiscal consolidation needs. Unemployment is projected to remain close to historically low levels, supporting consumer confidence. The fiscal situation improved rapidly due to both structural and cyclical factors and, so long as the weakening of growth is temporary, it is unlikely to derail this improvement.

    • France

      Given the sharp slowdown triggered by unresolved European sovereign-debt problems, France may have entered a short, shallow recession. Real GDP is projected to grow by just 0.3% in 2012 before accelerating to about 1.5% in 2013. Job-creation prospects have deteriorated, and the unemployment rate is projected to increase to 10.4% in end-2012 before stabilising in 2013. As economic slack increases, inflation should fall to around 1% in 2013.

    • Italy

      Italy’s economic recovery has lost momentum. Output is set to decline well into 2012, and thereafter the recovery is projected to be weak. Confronted with adverse market sentiment, the previous government adopted emergency measures to balance the budget in 2013. The newly-appointed government needs to fully implement this programme as well as undertake important structural reforms to spur growth. Fiscal tightening, combined with slowing world demand and weak competitiveness, will be a drag on growth in the short term, but it is needed to ensure progress toward fiscal sustainability. Unemployment will rise and wage growth will moderate, as will inflation after the impact of a VAT rise has worked through.

    • United Kingdom

      Weak international demand, continued retrenchment among households and needed fiscal consolidation has halted the recovery. Growth will start to pick up during 2012 as exports and household consumption recover, with further strengthening in 2013. Unemployment is rising and will reach 9% in 2013, while inflation is presently peaking as anticipated and is expected to fall below the 2% target in 2013 as temporary effects from VAT hikes and commodity prices wane. Monetary policy is supportive, with the Bank rate at 0.5% and quantitative easing being resumed. Further expansions of quantitative measures are warranted. The ambitious fiscal consolidation has bolstered credibility and helped maintain low bond yields, leaving room for automatic stabilisers to work fully to cushion the slowdown.

    • Canada

      The outlook for the Canadian economy has weakened significantly, mainly because of a deteriorating external environment. Heightened risks from renewed financial-market turmoil linked to the European sovereign debt crisis and high levels of household indebtedness are eroding consumer confidence. While business investment continues to expand robustly, weaker prospects for the global economy and persistent strength of the exchange rate are projected to restrain export performance, tempering the speed of economic growth. Underlying inflation will remain subdued due to continued significant economic slack.

    • Australia

      The growth of the Australian economy, which was slowed by natural disasters in early 2011, should pick up and remain above or around potential in 2012 and 2013. Vigorous investment and exports, buoyed by the mining boom, along with the positive income effect of high terms of trade, should offset the negative impact on activity of a persistently strong exchange rate and fiscal consolidation. Unemployment is expected to stay low and underlying inflation contained as the remaining slack in the economy gradually disappears.

    • Austria

      After a strong first half of 2011, growth has slowed markedly and will continue to do so into the first half of 2012. The deterioration in the external environment and heightened uncertainty has weighed on exports and investment, although consumption should continue to grow modestly, supported by a robust labour market and falling inflation. The economy is projected to return to trend growth by the end of 2012 and to grow slightly above trend in 2013 in the wake of a re-invigorated export and investment driven recovery.

    • Belgium

      The economy is slowing under the influence of renewed international turmoil, which is dragging down exports and investments. Growth is projected to pick up gradually around mid-2012, supported by favourable monetary conditions and higher international demand for Belgian goods. However, needed fiscal consolidation will damp the recovery. Unemployment is likely to rise over most of the projection period. Nevertheless, wage and price increases will remain higher than in other European countries as a result of the automatic wage indexation mechanism, eroding external competitiveness.

    • Chile

      Chile’s vigorous economic recovery, which was fuelled by high copper prices and post-earthquake reconstruction, has lost some momentum as the effects of the international slowdown feed through to domestic activity. Growth is projected to pick up once again in 2013 as confidence improves and the global economy normalises. The acceleration of activity in China – Chile’s main export destination – will contribute to faster exports.

    • Czech Republic

      Growth will slow in 2012, from an already modest pace, as a result of weakening exports and ongoing fiscal consolidation. It will become stronger and more broad-based again in 2013, underpinned by an improvement in world trade and recovery of domestic demand. Inflation is set to spike temporarily in 2012 due to indirect tax increases but will otherwise stay close to the central bank’s target.

    • Denmark

      The muted recovery, led so far by exports, government consumption and restocking, is expected to come to a halt despite low interest rates and ongoing fiscal stimulus. The renewed global slowdown will depress exports and postpone private investment. Uncertainty and worsening labour market conditions will act as a drag on household consumption. As a result, activity is not projected to pick up pace before next spring. With continued slack in the economy, inflation is set to remain subdued.

    • Estonia

      The rapid export-led recovery is projected to slow down but the economy will continue to outperform other European OECD countries, benefiting from reduced unit labour costs and recent investments in export-oriented manufacturing sectors. Private consumption will make an increasing contribution to growth following improvements in the labour market and in household balance sheets. Headline inflation will decline, as commodity and energy price shocks fade out, although core inflation will gradually increase.

    • Finland

      The recovery is losing momentum. Exports will continue to deteriorate as the global economy slows and Finland’s export performance remains weak. Domestic demand has held up well so far, but consumer confidence is eroding rapidly and real incomes are falling, foreshadowing a marked slowdown in private consumption and residential investment. Weak demand will weigh on business investment and overall output growth will slow during 2012. A recovery during 2013 is projected as the global outlook brightens, uncertainty falls and income growth resumes. The slowdown will lead to lower employment and higher unemployment. Fiscal policy, while ensuring medium-term consolidation, should allow automatic stabilisers to work.

    • Greece

      The economy fell deeper into recession in 2011 despite a rebound in exports, as sizable, but necessary, fiscal adjustment continued, domestic demand plunged and unemployment rose sharply. After contracting further in 2012, output is projected to begin to rise in 2013 led by wide-ranging structural reforms, strengthened external demand, improved competitiveness and higher investment. Substantial economic slack and high unemployment will push inflation to very low levels. To enhance credibility and ensure public debt begins to fall durably, fiscal consolidation must continue and structural reforms be implemented as envisaged. Risks to the outlook are substantial and remain skewed to the downside.

    • Hungary

      A mild recession is projected in 2012, driven by a fall in business and consumer sentiment, tight bank lending and financial conditions, ongoing deleveraging of the corporate and household sectors and major fiscal consolidation. Strengthening the credibility and predictability of domestic policies, notably through an agreement with multilateral organisations, is of utmost importance to regain investors’ confidence, cushion the effects of fiscal consolidation on activity and return to sound growth.

    • Iceland

      After successful completion of its IMF-supported adjustment programme, Iceland has returned to economic growth in 2011, despite the euro area turmoil. Growth is led by large energy-intensive investment projects, residential construction and private consumption expenditure, which will be spurred by high recent collective wage agreements. The unemployment rate has started to fall from high levels by Icelandic standards and should continue to decline with the pick-up of economic activity. While Iceland has made considerable progress in putting its public finances on a sustainable path, further consolidation is required, albeit less than in the countries affected by the sovereign debt crisis.

    • Ireland

      After its severe banking crisis, Ireland has made good progress in redressing fiscal and macroeconomic imbalances, with the help of the EU-IMF programme. Following comprehensive stress tests, the banks were recapitalised through government and private sector contributions. Ireland’s export markets are weakening significantly which, combined with needed fiscal tightening, is expected to result in modest growth in 2012, continued high unemployment and low core inflation. A gradual economic upturn is expected to unfold in 2013.

    • Israel

      The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

    • Korea

      Growth slowed in 2011, reflecting the deceleration in world trade and sluggish activity in the domestic sector, which has not yet fully benefited from the export-led recovery from the 2008 global crisis. More moderate growth is helping to bring inflation back into the central bank’s target range of 2 to 4%. Aided by continued buoyant demand from China, which accounts for a quarter of its exports, and won depreciation, exports are projected to lead a gradual upturn, with output growing by just over 4% in 2013, with the unemployment rate at around 3½ per cent.

    • Luxembourg

      Growth has slowed as deteriorating financial conditions and weaker export markets are damping exports of financial services and other products. Domestic demand will therefore remain weak and unemployment is expected to increase. Inflation will ease due to falls in energy and commodity prices. The main risk to the outlook is a worsening of the sovereign debt crisis in the euro area, which could have a lasting impact on the large financial sector. Luxembourg should thus continue to participate in European initiatives to ensure that the banking system is well-capitalised and adequately funded.

    • Mexico

      Following a strong recovery, growth is expected to lose some momentum along with international trade and US industrial production, although sound fundamentals and supportive macroeconomic policies should help to avert a sharp downturn. GDP is expected to grow by 4% in 2011 and slow to only 3.3% in 2012. With confidence gradually strengthening and some pick-up in growth in partner countries after mid-2012, exports and activity should pick up again in 2013 with GDP growth reaching 3.6%. Given considerable uncertainties regarding the health of the world economy and financial markets stability, risks are, however, mainly to the downside.

    • Netherlands

      The economy contracted in the second half of 2011. Domestic demand weakened as financial turmoil made investors and consumers more cautious and damaged the solvency of pension funds. Growth is projected to gradually pick up again from mid-2012, underpinned by stronger world trade and supportive monetary policy. Unemployment could continue to rise until mid-2012 and currently high inflation pressures will ease.

    • New Zealand

      Economic activity has been comparatively resilient and is set to accelerate over the next two years. Although a still relatively high NZ dollar and a weaker global economy will undermine exports for a time, and policy support will eventually be withdrawn, post-earthquake reconstruction will provide ongoing stimulus. High commodity prices and a recovering labour market are supporting incomes, although private spending will be restrained by necessary deleveraging.

    • Norway

      Norway has entered a soft patch, due to weakened confidence and subdued exports, which is expected to persist through mid-2012. The economy will subsequently resume its robust expansion as confidence returns. Consumer price inflation has remained low, reflecting moderate rises in unit labour costs and import prices, but the acceleration of output will lift it somewhat by the end of the projection period. The unemployment rate is likely to remain stable, as increasing labour demand will be met by continued high net immigration.

    • Poland

      GDP growth is projected to slow noticeably in 2012 and 2013 due to a sharp fiscal retrenchment and the projected sharp slowdown in the euro area with private consumption and investment decelerating rapidly as a result. Weaker domestic demand may be partly compensated by stronger net exports, driven by the significant depreciation of the zloty and the 2012 football championships.

    • Portugal

      The economy is expected to contract further through 2012, due to necessary fiscal consolidation, deleveraging and a marked slowdown in external demand. Unemployment is set to rise further, while higher indirect taxes will push up prices. In 2013, a mainly export-led return to growth is expected to gather pace, as global conditions improve. Private domestic demand should also start growing again and the current account deficit is expected to narrow substantially.

    • Slovak Republic

      After a strong rebound following the crisis, activity is expected to slow in line with weak growth in export markets and a decline in confidence. Due to persistent high unemployment and fiscal consolidation measures, public and private consumption is projected to remain subdued. With the improvement of the global environment and a pick-up in both exports and investment, GDP growth should strengthen from mid-2012 onwards. By damping tax revenues and increasing spending on social benefits, the economic slowdown will temporarily undermine fiscal consolidation plans.

    • Slovenia

      The deleveraging of the corporate sector and a weak external environment will weaken growth throughout the first half of 2012, with both consumption and investment flat. Unemployment has risen to close to 8.5% and inflation remains low. Activity is projected to begin to recover gradually thereafter, with increasing confidence and a pick-up in world trade bolstering private consumption and investment.

    • Spain

      Economic growth is projected to contract in the last quarter of 2011, reflecting slowing world trade and the impact of the euro area debt crisis on confidence and domestic funding conditions. The subsequent gradual recovery will be supported by improvements in competitiveness, although ongoing budgetary consolidation will weaken domestic demand. The unemployment rate may peak at 23% in 2012, while weak growth will reduce inflation below 1% in 2013. The fiscal deficit is projected to decline from 9.3% of GDP in 2010 to close to 6% in 2011. The government’s deficit targets of 4.4% in 2012 and 3% in 2013 are assumed to be reached.

    • Sweden

      Sweden enjoyed a very strong recovery through mid-2011, but is now being hit by the ongoing global economic slowdown. The pace of job creation is set to slow and the decline in unemployment to pause. Private consumption, which has been one of the main drivers of growth, should moderate. As world trade regains strength from mid-2012, Sweden’s economic momentum is projected to pick up. Spare capacity will increase in the near term, hence core inflation should stay subdued.

    • Switzerland

      Slowing activity in export markets and the strong Swiss franc have depressed economic growth in the second half of 2011. Growth will resume with strengthening global activity in the second half of 2012. While employment growth will be weak and the unemployment rate will rise until mid-2012, employment growth will resume at a moderate pace with overall economic activity afterwards. Consistent with persistent slack in the economy, inflation is projected to remain subdued and increase only gradually at the end of 2013.

    • Turkey

      Very strong growth in early 2011, driven by private consumption and investment, has been curbed by credit containment policies and deteriorating global conditions. As a result, real GDP growth is projected to slow to 3% in 2012. It is set to recover in 2013 as the external environment improves. The sharp exchange rate depreciation in 2011 should gradually help rebalance domestic and external demand and narrow the large current account deficit, which by mid-2011 approached 10% of GDP. On the other hand, it may also put upward pressure on already high inflation.

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    • Brazil

      Tighter economic policy and weaker external demand have helped to cool the economy from the rapid growth rates seen in 2010, but inflationary pressures have not receded and credit growth is still buoyant. Activity is expected to grow at below-trend rates over the next two years, notwithstanding support from large infrastructure programmes. Inflation may fall to about the middle of the central bank’s target band.

    • China

      Growth has continued to moderate in 2011, as higher interest rates and tighter credit to the private sector slowed investment in housing and foreign trade weakened. In 2012, export growth will be held to around 7% by weak world demand and a decline in competitiveness, but the impact on activity may be partially offset by increased public spending and a cut in income taxes. Nonetheless, real GDP is set to grow below potential in 2012. Together with a fall in import prices, this should help disinflation, permitting some reduction in policy interest rates. With domestic demand and foreign trade picking up in 2013, GDP growth should recover to close to 10%. The downward trend in the current account surplus should continue, despite an improvement in the terms of trade, with the surplus falling about 2% of GDP by 2013.

    • India

      Growth has moderated and, against the backdrop of a weakening global economy, is projected to remain relatively subdued and reliant on private consumption in the near term. Despite the cooling in activity, inflation remains persistently above the Reserve Bank of India’s comfort level. With inflation expectations also high, price pressures are likely to recede only gradually in response to easing demand and a stabilisation of commodity prices. An improvement in external conditions and some strengthening in business investment should lead to a pick-up in growth in the second half of 2012. The government needs to adhere to its strategy to further reduce the fiscal deficit to support monetary policy in achieving a sustained reduction in inflation.

    • Indonesia

      The economy’s orientation towards domestic demand and strong consumption and investment growth shields it from weaknesses abroad. Economic growth is thus expected to exceed potential rates in the next two years despite the slowdown in the OECD area. Inflation has eased for now but pressures are likely to emerge again soon. While Indonesia is likely to be less affected by a slowdown in world trade than other economies, changes in global risk aversion could reverse the capital inflows of the past few years and restrain growth.

    • Russian Federation

      Although confidence has weakened amid the global slowdown and financial turmoil, growth momentum seems likely to be sustained, supported by still-high oil prices. The food price shock has dissipated and the strong harvest in 2011 is now reinforcing disinflation. With credit growth moderating and the output gap remaining negative, inflation is projected to fall towards 5% in 2013. The budget is expected to be balanced or in a small surplus in 2011, aided by high oil prices, but to return to deficit in 2012-13 due to a large rise in spending next year. The already wide non-oil budget deficit is projected to increase slightly in 2012 before falling back gradually. The current account surplus should narrow due to buoyant import growth. A sharp oil price correction and renewed turbulence in financial markets remain the key risk factors.

    • South Africa

      The pace of recovery has slowed as a result of weak external demand, negative effects of the global slowdown on consumer and investor confidence and domestic labour unrest. As these factors ebb, growth should pick up somewhat in 2012, but remain below potential for a fifth consecutive year. As confidence returns, output growth should accelerate more decisively in 2013. Inflation is at the upper end of the central bank’s target range, but in the absence of further rises in commodity prices and given the negative output gap should ease to the middle of the target range by 2013.

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