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2002 OECD Economic Outlook, Volume 2002 Issue 2

image of OECD Economic Outlook, Volume 2002 Issue 2

Twice a year, the OECD Economic Outlook analyses the major trends that will mark the next two years. The present issue covers the outlook to the end of 2004 and examines the economic policies required to foster high and sustainable growth in member countries. Developments in selected major non-OECD economies are also evaluated in detail.

In addition to the themes featured regularly, this issue contains four analytical chapters addressing the following important questions: the deterioration in budgetary positions in most OECD countries, raising the labour force participation of older workers,  the benefits that OECD countries could achieve from undertaking reforms to promote product market competition, and inflation rates in some of the larger, slow-growing economies have not declined sufficiently to offset higher rates elsewhere in the euro area.

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United States

The recovery has proceeded somewhat unevenly. While low interest rates and disposable income gains have spurred household spending, much of the bounce-back in GDP in the first half of the year was due to inventory adjustments. Government purchases have also supported demand, but a turnaround in business fixed investment has not yet materialised. Growth appears set to slow somewhat, as the impetus from household purchases wanes with lower equity prices and a stagnant labour market. Later, strengthening export markets and a sharper pickup in investment should underpin a more robust expansion. Inflation is likely to remain quiescent, reflecting persistent slack in product and labour markets, but the current-account deficit may widen further.

Monetary policy has remained supportive. With recent signs that the labour market is weak and inflation subdued, interest rates should be kept low for the time being. But once the expansion gathers pace, they will need to be raised, moving steadily towards a neutral stance. Fiscal policy has loosened considerably as a result of new spending priorities and tax measures, and renewed restraintwill be needed to re-establish fiscal discipline.

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