Transcript the Presentation

OECD ECONOMIC OUTLOOK
Escaping the Low-Growth Trap?
Effective Fiscal Initiatives, Avoiding Trade Pitfalls
Ángel Gurría
OECD Secretary-General
Catherine L. Mann
OECD Chief Economist
Paris, 28 November 2016
11h00
www.oecd.org/economy/economicoutlook.htm
ECOSCOPE blog: oecdecoscope.wordpress.com/
Key messages
The global economy remains in a low-growth trap, but more active
use of fiscal policy will raise growth modestly
• Investment and trade are weak, weighing on drivers of consumption
such as productivity and wages
Policy uncertainties and financial risks are high
• But low interest rates create window of opportunity
Fiscal, structural, trade policies need to be interwoven for gains
• Reducing trade costs raises growth but trade restrictions put jobs at risk
• Expansionary fiscal initiative to boost growth and reduces inequality
would not impair fiscal sustainability
• Success of fiscal initiatives depends on structural policy ambition
Collective action enables greater gains at lower political cost
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Growth projections depend on fiscal actions
in major economies
World real GDP growth
Note: Based on macro-model simulations of an assumed fiscal stimulus in the US worth ¾ per cent of GDP in 2017 and 1¾ per cent of GDP
in 2018; estimated fiscal stimulus in China of 1½ per cent of GDP in 2016 and 1 per cent of GDP in both 2017 and 2018; and estimated fiscal
stimulus in the euro area of 0.4 per cent of GDP in 2016, 0.2 per cent of GDP in 2017 and 0.3 per cent of GDP in 2018. The stimulus in China
and the euro area is assumed to be implemented through government final expenditure on consumption.
Source: OECD November 2016 Economic Outlook database; and OECD calculations.
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Economic Outlook Forecasts
GDP growth1
2016
2015
2017
2018
Difference from
Difference from
November
November
September
September
Projections2
Projections2
Projections2
Projections22
Column3
November
Projections
World
3.1
2.9
0.0
3.3
0.1
3.6
United States
Euro area3
Germany
France
Italy
Japan
Canada
United Kingdom
2.6
1.5
1.5
1.2
0.6
0.6
1.1
2.2
1.5
1.7
1.7
1.2
0.8
0.8
1.2
2.0
0.1
0.2
-0.1
-0.1
0.0
0.2
0.0
0.2
2.3
1.6
1.7
1.3
0.9
1.0
2.1
1.2
0.2
0.2
0.2
0.0
0.1
0.3
0.0
0.2
3.0
1.7
1.7
1.6
1.0
0.8
2.3
1.0
China
India4
Brazil
6.9
7.6
-3.9
6.7
7.4
-3.4
0.2
0.0
-0.1
6.4
7.6
0.0
0.2
0.1
0.3
6.1
7.7
1.2
Column2
1. Per cent. GDP volumes at market prices adjusted for working days.
2. Difference in percentage points based on rounded figures.
3. With growth in Ireland in 2015 computed using gross value added at constant prices excluding foreign-owned multinational
enterprise dominated sectors.
4. Fiscal years starting in April.
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Without policy ambition,
the low-growth trap and
high financial risks will persist
5
Consumption and investment in advanced
economies remain sluggish next to past recoveries
Consumption
Investment
Note: OECD shown. Current recovery shows since 2008Q1 including the forecasts in the dotted line. Previous 3 recoveries prerecession peak in 1973Q4, 1980Q1 and 1990Q3.
Source: OECD November 2016 Economic Outlook database.
6
Weak labour productivity means
weak wage growth in advanced economies
Labour productivity
Real wage
Note: OECD shown. Current recovery shows since 2008Q1 including the forecasts in the dotted line. Previous 3 recoveries prerecession peak in 1973Q4, 1980Q1 and 1990Q3.
Source: OECD November 2016 Economic Outlook database.
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Low interest rates have supported
rising asset prices and credit growth
Real house prices in key advanced economies
Corporate debt in key EMEs
8
Source: BIS; and OECD Analytical House Price database.
High asset prices and rising corporate debt
raises vulnerability to a sharp rise in bond yields
10-year government bond yields
9
Source: Thomson Reuters.
Capital flows to EMEs are vulnerable to risk perceptions
and exchange rate uncertainty has increased
EME capital inflows and volatility
Implied exchange rate volatility
for major EMEs
Average for Brazil, Mexico, South Africa and Turkey
10
Source: Bloomberg; IMF Balance of Payments Statistics; and Thomson Reuters.
Reducing trade costs raises
growth but trade restrictions
put jobs at risk
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World trade growth is exceptionally weak
and protectionism is rising
World trade and GDP growth
Trade restrictions rising in G20 countries
Number of trade restrictive measures in-force since the crisis
Note: World GDP volumes measured at PPP exchange rates. World trade volumes measured at market exchange rates in US dollars.
For 2014, world trade average growth for four years to remove the rebound following the crisis.
Source: OECD November 2016 Economic Outlook database; and WTO-OECD-UNCTAD 2016 G20 Trade Policy Monitoring Report.
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Reducing trade costs raises output
Implementing trade restrictions would hurt output
Medium-term GDP impact of different
trade scenarios
Note: The implementing trade facilitation measures scenario shows the impact of a trade cost reduction by 1.3% across all sectors in all countries,
an estimate of the global average derived from the OECD’s Trade Facilitation Indicators. The imposing trade restrictions in major economies
scenario shows the impact of a goods trade cost increase of 10 percentage points for China, Europe and the United States against all trading
partners, equivalent to an average increase in tariffs to 2001 levels, the year when trade negotiations under the Doha Development Round started.
Source: OECD METRO model; and OECD calculations.
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Trade restrictions would put jobs at risk,
better policies would help share gains from trade
Share of total employment embodied
in foreign demand
Policy recommendations:
Avoid new trade protectionist measures
and roll back existing ones
Provide job search assistance and
re-employment support for workers in
transition
Use active labour market policies to
promote skills upgrading and life-long
learning
Strengthen social protection, coverage
and effectiveness
Note: For 2011, latest available.
Source: OECD TiVA database.
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Use the space for
fiscal initiatives and
structural reforms to
boost growth and equity
15
Most countries are moving toward the right
fiscal stance, but many could do more
OECD recommends more expansionary policy than projected
Recommended fiscal stance for 2017
Contractionary
Mildly contractionary
Broadly neutral
Mildly expansionary Expansionary
ARG, BRA, COL, CRI,
GRC, SVK
BEL
AUS, GBR, IDN,
KOR
CHL, CZE, DNK, ESP,
IND, IRL, ISR, JPN,
LTU, MEX, NZL,
PRT,TUR, SWE, ZAF
FRA, RUS, AUT,
FIN, NLD
CHE
SVN
CAN, ITA, NOR,
POL
DEU, EST,
LVA
CHN
USA, LUX
Contractionary
Mildly contractionary
Projected
fiscal stance Broadly neutral
for 2017
Mildly expansionary
Expansionary
HUN
ISL
OECD recommends less expansionary policy than projected
Source: OECD November 2016 Economic Outlook database; and OECD November 2016 Economic Outlook Special Chapter,
“Using fiscal levers to escape the low growth trap”.
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Low interest rates have created a window of
opportunity for governments to spend
Fall in government interest payments
Estimated budget gains over 2015-17 due to lower interest rates
Note: Budget gains calculated based on general government debt at the end of 2014, assuming that 25% of this initial debt
stock matures each year, comparing the interest rate on 10-year government bonds in 2014 with the interest rate for 2015 and
the 2016 average to August for 2016 and 2017.
Source: OECD June 2016 Economic Outlook database; and OECD calculations.
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There is room for a multi-year fiscal initiative
in almost all advanced countries
Number of years a permanent investment increase of
0.5% of GDP can be funded with temporary deficits
Source: OECD calculations based on Mourougane A. et al. (2016), “Can an increase in public investment sustainability
lift economic growth?” OECD Economics Department Working Papers, No. 1351, OECD Publishing, Paris.
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Choose fiscal spending to maximise
impact on growth and inclusiveness
Impact of spending reform
Growth
Income of
the poor
Countries with most
room for gains
Improving education
CHL, GRC, MEX,
PRT, TUR
Increasing public investment
and R&D
DEU, GBR, IRL,
ITA, MEX, TUR
Increasing government
effectiveness
FRA, GRC, HUN,
ITA, SVN
DEU, FIN, FRA,
JPN, POL
Pension reform
Increasing family benefits
CHE, ESP,
GRC, PRT
Decreasing public subsidies
BEL, CHE
positive impact
uncertain or no impact
Source: Fournier and Johansson (2016), “The Effect of the Size and the Mix of Public Spending on Growth and Inequality”,
OECD Economics Department Working Papers, No. 1344, OECD Publishing, Paris.
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Fiscal initiatives would strengthen growth
both in the short- and long-term
From a 0.5% of GDP increase in public investment
First-year growth gain
Long-term GDP gain
Note: Structural reforms shows the impact of a 10% reduction of product market regulations.
Source: Mourougane A. et al. (2016), “Can an increase in public investment sustainability lift economic growth?” OECD
Economics Department Working Papers, No. 1351, OECD Publishing, Paris; and OECD calculations.
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Structural policy ambition needs
to be stepped up
OECD Going for Growth recommendations implemented
Share by policy area, average for all countries, 2015-16
21
Source: OECD Going for Growth 2017, forthcoming.
Comprehensive and collective approach
needed on fiscal and structural policies
Use window of opportunity for fiscal initiatives
• Focus on quality investment to boost human capital and
infrastructure
• Combine with structural policies to raise demand, long-term
potential output and equality
• Collective action magnifies gains
Implement ambitious policy packages to boost
growth, inclusiveness, and to share gains from trade
• Increase the pace of structural reforms and supporting actions
• Many policies boost inclusive growth, productivity and employment
• Maintain open markets for trade and investment
• Support by domestic policies to help worker transition, strengthen
social protection and ensure gains are shared
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