OECD Economic Outlook, Volume 2005 Issue 2
Twice a year, the OECD Economic Outlook analyses the major trends and examines the economic policies required to foster high and sustainable growth in member countries. Developments in major non-OECD economies are also evaluated. The present issue covers the outlook to end-2007. Together with a wide range of cross-country statistics, the Outlook provides a unique tool to keep abreast of world economic developments. In addition to the themes featured regularly, this issue contains an analytical chapter addressing the recent run-up in house prices.
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Euro Area
Activity appears to be picking up after a lull in early 2005. The moderate recovery is expected to continue over the next two years. Business investment should rise as foreign and domestic demand improve, and household consumption should grow in line with disposable incomes. But the recovery is not expected to absorb all the economic slack by the end of 2007. Headline inflation should drop below 2% next year when the impact of the oil price hike wanes.
With the recovery expected to be moderate and any oil-price induced second round effects on wage inflation being uncertain, monetary policy should remain on hold for some more time, with tightening starting in earnest later next year. To ensure the long-term sustainability of public finances, fiscal consolidation needs to get underway as soon as it can safely do so without jeopardising the recovery. Further structural reforms are needed to improve the euro area’s medium-term economic performance and its resilience to shocks.
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