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 2

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17 Dec 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 and an extensive statistical annex.

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  • Editorial: The policy challenges: now and in the long term

    After five years of crisis, the global economy is weakening again. In this we are not facing a new pattern. Over the recent past, signs of emergence from the crisis have more than once given way to a renewed slowdown or even a double-dip recession in some countries. The risk of a new major contraction cannot be ruled out. A recession is ongoing in the euro area. The US economy is growing but performance remains below what was expected earlier this year. A slowdown has surfaced in many emerging market economies, partly reflecting the impact of the recession in Europe.

  • General Assessment of the Macroeconomic Situation

    A hesitant and uneven recovery is projected over the next two years. Growth in the OECD area is set to be modest in the near term, with the euro area remaining in or close to recession until well into 2013. Headwinds stem from fiscal consolidation, household deleveraging in many countries and confidence at low levels. Although conditions differ by country, a quicker recovery is expected in the non-OECD area, in part reflecting the greater scope for policy stimulus.

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  • Expand / Collapse Hide / Show all Abstracts Developments in individual OECD countries

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    • United States

      The gradual recovery is continuing. Activity has been expanding at a pace just slightly ahead of potential, while the labour market has recovered very slowly. The housing market has shown signs of a turnaround, but its contribution to overall GDP growth remains small. Faced with these developments, the Federal Reserve announced in September that it would take further measures to sustain the upturn through a new round of long-term asset purchases, and that the federal funds rate was likely to remain at exceptionally low levels at least through mid-2015. Nevertheless, given the substantial fiscal drag still ahead, output is projected to expand only moderately next year and pick up slowly thereafter.

    • Japan

      After strong growth in the first half of 2012, supported by reconstruction spending in response to the 2011 Great East Japan Earthquake, the recovery stalled, reflecting the slowdown in world trade and weaker domestic demand. While the economy is projected to pick up in 2013, annual growth may be limited to around ¾ per cent in both 2013 and 2014, as reconstruction outlays wane and planned tax hikes damp private consumption. The unemployment rate will remain above its pre-2008 crisis level.

    • Euro Area

      The euro area is in a recession, driven by faltering confidence, which is projected to persist into the early part of 2013. Growth is projected to pick up only slowly during 2013 and into 2014. On-going fiscal consolidation will hold back activity, but private demand will pick up as confidence and the functioning of the financial sector improve. Continued high unemployment and a large margin of excess capacity will depress inflationary pressures. The main risk is a lack of sufficient progress by policy makers in resolving the crisis.

    • Germany

      The economy is weakening markedly as world trade has slowed. Unusually low interest rates are supporting domestic demand, raising imports and reducing the current account surplus. As export markets recover, real GDP is projected to expand by ½ per cent in 2013 and by 2% in 2014. Unemployment is projected to rise somewhat in 2013. Consumer price inflation is projected to remain close to 2%, on the back of rising energy prices and robust domestic demand.

    • France

      Activity has been more or less stagnating since late 2011, and real GDP is projected to rise by only 0.3% in 2013, but then to expand by 1.3% in 2014. Joblessness and slack more generally will therefore continue to increase until late in the projection period, when the unemployment rate could reach 11¼ per cent. With weak growth, consumer price inflation is expected to fall gradually to below 1½ per cent per year.

    • Italy

      Italy’s comprehensive policy of growth-friendly structural reforms and fiscal consolidation is well underway. Nonetheless, the economy is projected to continue contracting in the short term, reflecting budgetary tightening, weak confidence and tight credit supply. Weak growth will put further downward pressure on employment, wages and consumer prices. With gradual improvements in competitiveness, confidence and financial conditions, the economy is projected to return to growth during 2013.

    • United Kingdom

      The global economic slowdown, euro area uncertainty, necessary fiscal retrenchment and private deleveraging are generating headwinds for the economy. Output remains about 3% below its pre-crisis peak. Growth is projected to recover gradually and gain momentum towards the end of 2013, as exports and household spending pick up as confidence recovers. Although employment grew strongly in 2012, unemployment is expected to rise slightly in 2013, as the subdued recovery and continued uncertainty may make firms hesitant to hire.

    • Canada

      Economic growth has softened as the year has wore on and is likely to remain only moderate until mid-2013. Housing investment and house prices are set to cool somewhat in response to tighter mortgage rules to prevent households from becoming over-extended. The public sector is consolidating, and exports are being held back by poor competitiveness and weak global growth. Business investment should remain relatively strong, however, thanks to global demand for natural resources, low capital costs and corporate tax rates, and the high exchange rate, which is reducing the price of imported capital equipment.

    • Australia

      Output is projected to expand by roughly 3¼ per cent in 2013 and 2014, which would be slightly below potential. Despite the decrease in the terms of trade, the mining sector can still be expected to sustain growth which remains marked by substantial sectoral disparities. Nevertheless, the high exchange rate, continued household deleveraging and budget-tightening in 2012/13 should damp activity in many other sectors.

    • Austria

      After moderate growth in early 2012, activity stagnated in the latter half of the year due to softening external demand and deteriorating confidence, which offset gains in real disposable income and generally favourable financing conditions. Both domestic and external demand will benefit from gradually improving confidence and strengthening world trade over the forecast horizon, and growth is projected to reach 0.8% in 2013 and 1.8% in 2014.

    • Belgium

      The economy is recovering slowly from a broad-based contraction in spring 2012, which reflected weak domestic demand, fiscal consolidation and slowing exports. A gradual pick-up is projected as world trade gathers pace and the dissipation of the euro area crisis strengthens confidence. The unemployment rate will rise through 2013, but stabilise in 2014.

    • Chile

      Growth has been robust in 2012, primarily supported by domestic demand, reflecting real wage growth and strong job creation. Despite intense utilisation of production capacity and low unemployment, headline and core inflation have remained in the lower part of the central bank’s tolerance range of 2-4%. With weakening global conditions, activity is projected to slow next year. As export markets – notably China – strengthen in late 2013, growth is projected to pick up again in 2014 to about 5½ per cent.

    • Czech Republic

      The economy contracted in 2012 due to the impact of fiscal consolidation on private consumption expenditures and the effects on investment of uncertainty about the euro area. The economy is projected to recover slowly in 2013 as domestic demand strengthens and external conditions improve. Indirect tax increases are temporarily boosting inflation, but inflation expectations are well anchored.

    • Denmark

      Growth has been weak but is projected to gain some strength from the second half of 2013, supported by low interest rates. The labour market is likely to remain weak, but unemployment is projected to start to decline in 2013. Private consumption is being held back by uncertainty and deleveraging but is expected to gather strength as confidence improves.

    • Estonia

      Growth is projected to accelerate in 2013 as improving external conditions give a boost to exports. While public investment will contract, private investment will pick up, driven by rising capacity utilisation and the planned modernisation of energy and transport infrastructure. Private consumption growth will be underpinned by increasing employment and wages. Headline inflation will continue to fall due to softening commodity prices, even while domestic price pressures are strengthening.

    • Finland

      The economy is slowing, with the worsening external environment hitting exports of capital goods particularly hard. Falling confidence, weak real income growth and continued fiscal consolidation will hold back activity and employment in 2013. The expected global recovery in 2014 and strengthening confidence should revive exports, consumption and investment and gradually bring down unemployment. The tax-driven hikes in inflation to well above the euro area average should fade in 2014.

    • Greece

      The economy contracted further in 2012 owing to strong, but absolutely necessary, fiscal consolidation, declining wages and confidence, and weak external demand. Unemployment has risen to historical highs. A return to positive growth is projected only towards the end of 2014 as world trade strengthens, confidence returns and competitiveness improves.

    • Hungary

      Hungary fell back into recession in 2012, but real GDP is projected to expand from mid-2013. Headline inflation accelerated sharply owing to higher fuel and food prices, and hikes in indirect taxes. Inflation expectations have risen above 6%, calling into question the credibility of the inflation target.

    • Iceland

      Following a deep recession, the economy has grown steadily since late 2010. The recovery, which is being led by private consumption and residential and business investment, is projected to continue with growth at just over 2½ per cent in both 2013 and 2014. Inflation is set to fall sharply from almost 6% in spring 2012 to 3½ per cent by 2014, but to remain above the authorities’ target of 2.5%.

    • Ireland

      While marked progress has been made in resolving the financial and banking crises, economic growth is projected to remain low, but positive, during the next two years. The weak European economy, accounting for a majority of Irish exports by destination, will make it difficult to offset the drag from ongoing fiscal consolidation, household deleveraging, low credit availability and subdued sentiment. Weak growth makes it unlikely that unemployment will decline substantially from the current high levels. Ample spare capacity will keep inflation low.

    • Israel

      Output growth has flattened out. However, driven largely by external demand, economic growth is projected to start picking up in the first half of 2013. Inflation remains moderate, but underlying price pressures will strengthen as the economy gathers momentum.

    • Korea

      Following a pause in mid-2012, output growth is projected to pick up gradually to around 4½ per cent by 2014, led by a rebound in exports as world trade gains momentum. Private consumption is likely to remain subdued, given the high level of household debt. Inflation, which has fallen to less than 2%, is expected to return to the central bank’s target range of 2.5-3.5%.

    • Luxembourg

      Growth has stalled, reflecting a slowdown in exports. A moderate pick-up in growth is projected to begin towards 2014 as external demand and confidence recover. Unemployment is set to rise, but then to stabilise as demand picks up. Core inflation will remain above the euro area average, driven by the backward-looking wage indexation mechanism.

    • Mexico

      Despite the global slowdown, Mexico’s economy has been expanding rapidly and formal employment has been rising, supported by strong domestic demand and exports. The weak recoveries of Mexico’s key trading partners and falling external demand in late 2012 will moderate exports and investment into mid-2013. As world and in particular US demand picks up in late 2013 and into 2014, growth will gradually strengthen to around 3½ per cent by 2014.

    • Netherlands

      After a slowdown in the second half of 2012, activity is projected to gather pace gradually, driven by stronger world trade and, in turn, business investment. In contrast, private consumption will remain depressed as real incomes decline further in 2013, reflecting cuts in social spending and private pensions, higher VAT and a deepening of the housing market crisis. Only in 2014 will growth return to potential and unemployment stabilise.

    • New Zealand

      The economy is set to expand at only a modest pace with headwinds from weak external demand, a strong currency, high household indebtedness and fiscal consolidation. Post-earthquake rebuilding will provide the main impetus over the coming two years through buoyant investment activity.

    • Norway

      Strong growth will continue into 2013 and 2014. Investment in the petroleum industry will give way to consumption as the main source of demand growth for the mainland economy. External demand will initially be very weak but recover somewhat in 2014. Demand for labour will remain buoyant. Low import prices and exchange rate appreciation have helped to keep inflation low, but it will rise through 2014.

    • Poland

      Growth is projected to slow considerably in coming quarters as a result of weaker domestic and external demand. However, activity should pick up again in the second half of 2013 and strengthen further in 2014. Yet slack in both product and labour markets will increase, pushing inflation below 2% in 2014. The current account deficit should stabilise above 3% of GDP in 2014.

    • Portugal

      A large, but necessary, fiscal consolidation, continued bank deleveraging and weak external demand are projected to leave the economy in recession for some time. Inflation is set to fall to a very low level as economic slack increases. As global conditions improve and exports pick up, growth is projected to turn positive by the end of 2013, although unemployment will remain at very high levels for longer. Improvements in competitiveness are projected to eliminate the current account deficit by the end of the projection period.

    • Slovak Republic

      Economic growth, mainly driven by exports in the automotive sector, slowed in the second half of 2012, but was still among the strongest in the OECD area. The economy is projected to pick up slowly through 2013 and grow by about 3½ per cent in 2014 on the back of stronger world trade. Private consumption is likely to remain subdued due to the weak labour market and significant fiscal consolidation.

    • Slovenia

      Economic activity is projected to contract further in 2013, driven by rapid fiscal consolidation and ongoing deleveraging in the financial and corporate sectors. Growth is projected to turn positive again in 2014. Unemployment is unlikely to level off until the end of 2013, and the large degree of economic slack should keep inflationary pressures contained.

    • Spain

      The recession is projected to intensify with the economy contracting again in 2013. Growth is projected to return in 2014. Jobs will continue to be shed and the unemployment rate could rise to over 26%. Significant fiscal consolidation, weaker demand from trading partners and difficult financial conditions will take their toll. Inflation is expected to remain subdued after a VAT-related spike in prices. Notwithstanding ongoing underlying consolidation, the fiscal deficit is projected to fall only gradually owing to weak economic growth.

    • Sweden

      The economy lost momentum this year, reflecting the uncertain external environment and weakening household confidence as unemployment increased and house prices fell. From mid-2013, however, growth is projected to pick up to beyond its potential rate. The unemployment rate is projected to begin to fall, although remaining spare capacity should keep inflation at low rates.

    • Switzerland

      Growth has slowed in 2012 due to export weakness, although most domestic demand components remain fairly robust. The slowdown is projected to continue into 2013, but activity should then gradually recover as export markets expand. Uncertainty about euro-area developments is high, posing a threat to financial stability.

    • Turkey

      Growth has slowed markedly since mid-2011, with a deceleration in domestic demand only partly offset by surging exports. As a result, the large current account deficit has begun to narrow. However, the competitiveness gains, mainly stemming from the nominal exchange rate depreciation in 2011, have since largely been eroded, not least by persistently high inflation. Growth is projected to regain momentum on the back of recovering domestic demand, rising to around 4% in 2013 and exceeding 5% in 2014. Inflation and the current account deficit are projected to remain well above comfort levels.

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    • Brazil

      The effects of strong monetary and fiscal stimulus are gradually lifting the economy out of below-trend growth. Forward-looking confidence indicators look promising and unemployment is low. Inflation has declined and stabilised, albeit somewhat above the midpoint of the target range.

    • China

      Growth fell to an estimated 7½ per cent in 2012 – the lowest rate for over a decade. This reflects weak export market growth and the effect on domestic demand of government measures to cool inflationary pressures. This objective has now been achieved, including for property prices, and the authorities have started to ease the stance of macroeconomic policy. Going forward, the economy will still face external headwinds, but housing and infrastructure outlays are likely to revert to their longer-term trend. With domestic demand gathering renewed momentum, the current account surplus is set to shrink to 2¼ per cent of GDP by 2014, compared with the peak of 10% in 2007.

    • India

      The economy has experienced a broad-based slowdown and growth is expected to remain weak for some time. The current account deficit has narrowed as imports have softened on account of cooling domestic demand and a weaker rupee. Inflation has temporarily been pushed up by hikes in regulated petroleum prices but is expected to decline as spare capacity mounts. This will create room for easing monetary policy, which has been hindered by persistently high inflation and a widening fiscal deficit.

    • Indonesia

      Domestic spending has remained solid, but demand from key trading partners has been slowing sharply. Output is nevertheless expected to grow at close to trend rates over the projection period, held up by domestic demand. An intended hike in the price of electricity next year will drive inflation up temporarily. However, tight labour markets and large minimum wage rises will exert more fundamental pressures.

    • Russian Federation

      Following a soft patch in the second half of 2012, growth is projected to pick up again to around 4% in 2013 and 2014, underpinned by increasing oil prices and easing headwinds from the euro area crisis. Gradual disinflation will continue after a temporary rebound of inflation due to the delayed increase of administrative prices and food price increases. The budget will be in surplus, but the non-oil deficit will remain substantial. The large current account surplus will diminish slowly.

    • South Africa

      The anticipated acceleration in growth has been delayed by the global slowdown and a wave of strikes. Growth is expected to be 2.6% in 2012, below potential, but is projected to pick up to 3.3% in 2013 and 4% in 2014. Core inflation will be contained by the large degree of slack in the economy, although recent food price increases are expected to fuel a temporary rise in headline inflation. Weak export volumes and the worsening terms of trade have widened the current account deficit this year and will take it to around 6% of GDP in 2013-14.

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  • 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 2012 to 2014 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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