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 2012 Issue 1

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19 June 2012
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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, a chapter on medium and long-term scenarios for growth and imbalances, and a and a statistical annex.

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  • Editorial: Confidence, Recovery, and the Euro: Is it Different this Time?

    The global economy is, once again, trying to return to growth, helped by a modest pick-up of trade and an improvement in confidence. It is doing so, however, at different speeds, with the United States and Japan growing at a stronger pace than the euro area and large emerging economies enjoying a moderate cyclical upswing. Different dynamics are also developing in labour markets in the United States, where unemployment is slowly decreasing, and in the euro area, where instead it keeps rising.

  • General Assessment of the Macroeconomic Situation

    The projection presented in this Economic Outlook rests on the assumption that policy actions will be sufficient to prevent destabilising euro area developments, that there will be no major disturbances affecting oil prices, and that disruptive US fiscal consolidation will be avoided.

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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 gained momentum since the first half of last year, with moderate employment gains and a pick-up in the pace of consumer spending. Nevertheless, real GDP growth is projected to increase only gradually this year and next, as the economy is still overcoming important hurdles. Housing demand has increased noticeably, but the overhang of unsold homes and the tide of foreclosures will restrain the revival in residential investment.

    • Japan

      Following a trade-induced slowdown in late 2011, public reconstruction spending in response to the Great East Japan Earthquake will help boost growth to around 2% in 2012. As reconstruction outlays wane, the expansion will be supported through 2013 by a pick-up in exports. Deflation is likely to diminish, although the unemployment rate will remain above its pre-2008 crisis level.

    • Euro Area

      Activity has stagnated after contracting in end-2011 and unemployment is set to rise further, owing to weak confidence and difficult financial conditions related to the sovereign debt crisis. Provided that policy actions are sufficient to improve confidence, activity will begin gradually to recover in the second half of 2012, notwithstanding fiscal consolidation and private sector deleveraging. There will be a marked divergence between stronger growth in creditor countries and a weaker and delayed recovery in those with a large debt overhang. The large margin of spare capacity will moderate underlying inflationary pressures. The main risks centre on intensification of the debt crisis and the economic effects of high public and private indebtedness.

    • Germany

      Following a strong start at the beginning of the year, activity is set to pick up further as confidence improves and domestic demand strengthens. Strong labour market performance, low deleveraging needs and favourable financing conditions will contribute to the rebound in private consumption and investment over the projection period. The expected recovery of world trade should further improve business confidence and mitigate negative spillovers from weakness in the rest of the euro area.

    • France

      After stagnating in the first half of this year, economic activity is expected to pick up modestly. Real GDP is projected to grow by just 0.6% in 2012 and 1.2% in 2013. Residential investment might decrease as house prices have started to decline from high levels, and affordability is poor. The unemployment rate may peak at 10.5% at the beginning of 2013 and fall only slowly thereafter. Headline inflation should recede to below 2% in 2013.

    • Italy

      Since late 2011, Italy has introduced significant structural reforms while making progress in fiscal consolidation. The economy has re-entered recession, under pressure from weak European economies and the short-term consequences of fiscal tightening. Activity seems likely to continue to decline over the next year but will turn up in late 2013. Assumed rising oil prices and another increase in VAT will lead to temporarily higher inflation, but underlying price increases are moderate.

    • United Kingdom

      The global economic slowdown and uncertainties in the euro area outlook, alongside fiscal retrenchment and private deleveraging, are generating headwinds to growth. Growth will remain weak in the first half of 2012, but should gain momentum thereafter, with private consumption supported by higher real incomes, as inflation slows, and exports and business investment revive with stronger external demand. Unemployment will continue to rise over the projection period, due to job cuts in public administration and weak output growth.

    • Canada

      The outlook has been gradually improving, despite the persistent European debt crisis and consequent economic uncertainties. Against this backdrop, the main drivers of growth will continue to be private consumption and investment. External demand is also expected to be increasingly supportive. By contrast, fiscal consolidation will work in the opposite direction. In all, growth is projected to be around 2¼ per cent in 2012 and 2½ per cent in 2013.

    • Australia

      Australia can be expected to keep reaping benefits from the mining boom. Despite sharp sectoral disparities, economic growth should be around potential in 2012 and 2013. Mining expansion will continue, but some other sectors are having to adjust to the high level of the exchange rate and raise their productivity, which can be expected to weigh on the labour market. Faster fiscal consolidation will also weigh somewhat on demand.

    • Austria

      After slowing markedly over the course of 2011, activity stabilised in early 2012 as investor sentiment and financing conditions improved. Consumption and investment will continue to grow modestly in the near term and weakness in export demand persists. The economy is projected to return to trend growth by early 2013 driven by improving global conditions that will strengthen exports and investment.

    • Belgium

      The economy will enter a steady expansion path only during the second half of 2012 as exports gain traction from faster world trade. Fiscal consolidation, low capacity utilisation and profitability, and high unemployment will subdue domestic demand.

    • Chile

      Following a period of robust economic expansion, the economy has started to slow, reflecting the spillover effects of the euro area sovereign debt crisis through lower confidence and tighter credit conditions. A moderate easing of growth to 4½ per cent is expected in 2012 as domestic demand softens and international financial conditions remain volatile. Better global growth prospects should contribute to faster growth of 5% in 2013.

    • Czech Republic

      Real GDP will fall in 2012 owing to a decline in domestic consumption spurred by fiscal consolidation. Growth is projected to return in 2013 due to stronger exports and investment.

    • Denmark

      Growth in 2012 will be driven mainly by fiscal stimulus. Weak external demand will slow exports, while a stagnant labour market and renewed declines in house prices will constrain household consumption. In 2013, as the international environment becomes more supportive and confidence improves, private demand will gradually replace public investment as the driver of growth. With continued slack in the economy, core inflation is projected to be subdued.

    • Estonia

      Export-led growth was strong in 2011, but is projected to weaken substantially in 2012 due to the weak external environment, notably euro area tensions. As world trade growth improves, activity is projected to pick up again in 2013. Disinflation will be interrupted temporarily by oil price increases and electricity market liberalisation.

    • Finland

      The economy is slowing markedly as exports weaken. Activity will be supported mainly by private consumption in 2012 on the back of firm wage growth and consumer confidence. The expected recovery in the global economy towards end-2012 should revive exports and investment, strengthening growth in 2013.

    • Greece

      The economy contracted sharply in 2011 due to strong fiscal retrenchment, severe economic dislocation and weak exports. Unemployment has risen rapidly, especially among the young. Output is set to decline further until the second half of 2013 when the pace of fiscal consolidation is expected to ease somewhat, wide-ranging structural reforms to boost competitiveness and promote investment start to bear fruit, and international demand strengthens. These projections assume that the EU/IMF programme of fiscal consolidation and structural reform is fully implemented.

    • Hungary

      Economic activity, which has so far been mainly driven by exports, is expected to decline in 2012. As domestic demand gradually improves, growth should return in 2013. A weak currency, rising oil prices and hikes in indirect taxes have significantly increased prices, though their effects should moderate gradually.

    • Iceland

      Following two years of deep recession, the economy returned to buoyant economic growth in 2011. The recovery, which is being led by private consumption and business investment, is projected to moderate, with growth easing to 2¾ per cent by 2013. Inflation should fall but remain above the authorities’ target in 2013.

    • Ireland

      Ireland returned to growth last year and the economic recovery is projected to gain further momentum, despite ongoing budgetary consolidation. A recovery in Europe and North America should boost exports in 2013. With activity improving gradually, the labour market situation will slowly turn around and unemployment will stabilise. Inflation is projected to remain low, apart from a temporary energy and VAT-related spike in prices.

    • Israel

      Economic activity has been slowing in line with export market developments but is expected to pick up on the back of stronger external demand. Underlying inflationary pressures will rise slightly, encouraging a resumption of policy-rate increases by the Bank of Israel.

    • Korea

      Following a slowdown in late 2011, output growth is projected to pick up gradually, led by a rebound in exports as world trade gains momentum. Stronger exports will in turn boost domestic demand, helping to achieve output growth of 4% in 2013. With higher oil prices, the current account surplus is expected to fall to around 1½ per cent of GDP.

    • Luxembourg

      Growth has slowed as weak equity markets led to a fall in financial services activity and lower demand in the euro area reduced exports of industrial goods. Demand will remain sluggish in the near term and unemployment will continue to rise. Inflation will fall only slowly due to rising oil prices. The main risk to the outlook is a worsening of the crisis in the euro area, which could have a lasting impact on activity in Luxembourg’s large financial sector.

    • Mexico

      The strengthening of the US economy should make up for headwinds from the euro area and moderating domestic demand in Mexico. Combined with an ongoing expansion of export market shares and gradually improving domestic conditions, this would contribute to sustain GDP growth just over 3½ per cent in 2012, and close to 4% in 2013. Uncertainties in the outlook are primarily related to the evolution of the US economic recovery.

    • Netherlands

      After a significant downturn, the economy should start recovering in the second half of 2012, mainly due to stronger world trade, which will feed into higher business investment. On the other hand, private consumption will remain depressed given sluggish growth in real incomes, reflecting higher unemployment and only modest real wage increases, as well as planned pension cuts and a depressed housing market. A further drag on growth comes from the planned fiscal consolidation. Overall, growth is set to remain below potential throughout 2012-13, and unemployment will rise further.

    • New Zealand

      Growth is expected to pick up from 1¼ per cent in 2011 to 2¾ per cent in 2013. The main supports to growth will be low interest rates, comparatively strong growth in New Zealand’s main trading partners (Australia and China) and the rebuilding of Canterbury following the reduction in seismic activity in the region. The expansion is being held back by the strong exchange rate, falling commodity prices, the withdrawal of fiscal stimulus and pressures for households to deleverage.

    • Norway

      The economy is projected to continue its robust expansion through 2013. Private consumption and investment will rise appreciably, supported by fiscal and monetary policy. Exports will benefit from their concentration on relatively strong economies in Europe and Asia. Higher activity and commodity prices are likely to lift consumer price inflation from its currently low level.

    • Poland

      Following strong economic performance in 2011, GDP growth is projected to slow to about 3% in 2012 and 2013 as a result of softer external demand, uncertainty related to the euro area crisis, ongoing fiscal consolidation, the marked deceleration of public investment in the aftermath of the 2012 football championships, and the levelling off of EU funds in 2013.

    • Portugal

      Deep fiscal consolidation, bank deleveraging and weak external demand will leave the economy in recession until mid-2013, and the unemployment rate is set to rise to around 16%. As global conditions improve and exports accelerate, growth should resume. As the impact of indirect taxes hikes and more expensive oil wanes, inflation is expected to decrease markedly owing to the persistent slack. The current account deficit narrowed substantially in 2011, and will continue to shrink as economic adjustment continues.

    • Slovak Republic

      GDP growth has been driven mainly by exports and investment. Private consumption has remained subdued, reflecting persistent high unemployment and the effect of fiscal consolidation. Economic activity is now projected to grow by about 2½ per cent in 2012 and 3% in 2013 as world trade recovers. However, employment prospects remain poor as firms try to increase productivity growth to regain competitiveness.

    • Slovenia

      The economy has been contracting since the beginning of 2011 and the weakening of activity is expected to continue over the projection period, driven by strong consolidation and ongoing deleveraging in the financial and corporate sectors. Unemployment is unlikely to stabilise before 2013. Inflationary pressures are likely to remain in check, owing to the large economic slack.

    • Spain

      The economy is projected to continue contracting throughout 2012, as budgetary consolidation and deleveraging in the private sector weigh on domestic demand. Expanding world trade and competitiveness gains will allow for stronger export growth. Real GDP is expected to fall by 1½ per cent in 2012 and then by a further ¾ per cent in 2013. The unemployment rate will rise above 25%. The budget deficit is projected to fall from 8.5% of GDP in 2011 to 3.3% in 2013.

    • Sweden

      Activity was hit hard by the global economic slowdown in late 2011 and unemployment rose. Growth is expected to be modest this year but stronger in 2013 as world trade regains strength and confidence improves. With ample spare capacity, core inflation should stay subdued.

    • Switzerland

      Growth is expected to pick up from the second half of 2012 onwards, on the back of strengthening activity in Switzerland’s main trading partners, and unemployment is projected to decline slowly. Inflation will remain low, increasing only moderately from the end of 2012 onwards. The general government budget balance will remain in surplus.

    • Turkey

      Economic activity decelerated markedly in the second half of 2011 following policy measures to curb domestic demand and a weakening of external demand. Growth is projected to recover gradually in 2012 as confidence and international conditions improve, reaching 3¼ per cent in 2012 and 4½ per cent in 2013.

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    • Brazil

      A patch of weak growth seems to be coming to an end thanks to prompt and strong policy support. Activity is projected to pick up quickly and then gradually ease to trend rates, driven by private consumption and investment. In the context of a tight labour market and recovering credit growth, inflationary pressures may resurface.

    • China

      China’s slowdown became more pronounced in late 2011 and early 2012 as first exports and then inventories fell. Final domestic demand held up well though, aided by accelerating household incomes and slower inflation. As the inventory cycle turns, and fiscal and monetary policy become more expansionary, growth should pick up in the course of 2012 and stabilise at over 9% in 2013. The current account surplus continued to shrink during 2011 and is projected to drop to just over 1½ per cent of GDP by 2013.

    • India

      The economy has slowed, with the weakness focussed in manufacturing and investment spending. Softening external demand, together with continued strength in imports, led to a widening current account deficit. Although inflation has moderated from double-digit rates it remains relatively high and expected increases in regulated prices of some oil-related products will add to price pressures which will continue to weigh on household consumption. This in turn will make the climate for investment less favourable. As a result, growth is expected to remain subdued through much of the year.

    • Indonesia

      Domestic spending has remained solid, but demand from other Asian countries has been slowing. Nonetheless, output is expected to grow at close to trend rates of around 6% this year and next, supported by infrastructure spending and rebounding exports. An intended hike in the price of subsidised fuel at mid-year will temporarily drive up inflation.

    • Russian Federation

      Higher oil prices and the easing of euro area tensions will allow economic growth to continue at above 4 per cent in 2012 and 2013. Inflation will rebound from record-low levels in the second half of this year as temporary favourable factors fade, before resuming a gradual downward trend. The budget is projected to remain in surplus in 2012-13, but the non-oil deficit will remain wide.

    • South Africa

      A resumption of employment growth is now reinforcing increases in domestic demand and, barring adverse shocks, the hitherto sluggish recovery should accelerate. Increases in food and fuel prices have pushed inflation above the target range, but there is still much spare capacity and, as temporary influences wane, inflation is projected to fall back into the target range by end-2012.

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  • Medium and Long-term Scenarios for Global Growth and Imbalances

    Many countries face a long period of adjustment to erase the legacies of the crisis, particularly high unemployment, excess capacity and large fiscal imbalances. Further ahead, demographic changes, including ageing, and fundamental forces of economic convergence will bring about massive shifts in the composition of global GDP. To illustrate the nature and scale of some of the policy challenges posed by these developments, this chapter describes medium and long-term scenarios for OECD and non-OECD G20 countries using a new modelling framework to extend the short-term projections described in  . This framework focuses on the interaction between technological progress, demographic change, fiscal adjustment, current account imbalances and structural policies. The scenarios suggest that gradual but ambitious fiscal consolidation and structural reforms could bring about substantial gains in growth as well as reducing a range of risks, particularly by reducing large fiscal and current account imbalances.

  • 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 2011 to 2013 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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