Global growth weakening as some risks materialise - OECD INTERIM ECONOMIC OUTLOOK - Laurence Boone - OECD.org
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OECD INTERIM
ECONOMIC OUTLOOK
Global growth weakening as
some risks materialise
6 March 2019
Laurence Boone
OECD Chief Economist
http://www.oecd.org/eco/outlook/economic-outlook/
ECOSCOPE blog: oecdecoscope.wordpress.comKey messages
Growth is weakening particularly in Europe
Vulnerabilities in China, Europe and financial
markets could derail the global economy
Governments should cooperate to reduce risks
2Global growth is slowing with further signs of
decoupling
World GDP growth has started to GDP growth is more dispersed
slow
% % y-o-y United States Euro area
q-o-q a.r. y-o-y
4.5 3.5
3.0
4.0
2.5
3.5
2.0
3.0
1.5
2.5 1.0
2016 2017 2018Q4 2016 2017 Q4
Note: LHS: Global growth in PPP terms. GDP figures for the fourth quarter of 2018 are based on available national accounts data plus 2018
estimates for Argentina, Australia, Russia, and Turkey. 3
Source: OECD Economic Outlook database.Real GDP growth revised down
OECD Interim Economic Outlook Projections
Year-on-year, %. Arrows indicate the direction of revisions since November 2018.
2018 2019 2020 2018 2019 2020
World 3.6 3.3 3.4 G20 3.8 3.5 3.7
Australia 2.9 2.7 2.5 Argentina -2.5 -1.5 2.3
Canada 1.8 1.5 2.0 Brazil 1.1 1.9 2.4
Euro area 1.8 1.0 1.2 China 6.6 6.2 6.0
Germany 1.4 0.7 1.1 India1 7.0 7.2 7.3
France 1.5 1.3 1.3 Indonesia 5.2 5.2 5.1
Italy 0.8 -0.2 0.5 Mexico 2.1 2.0 2.3
Japan 0.7 0.8 0.7 Russia 2.3 1.4 1.5
Korea 2.7 2.6 2.6 Saudi Arabia 2.0 2.1 2.0
United Kingdom 1.4 0.8 0.9 South Africa 0.8 1.7 2.0
United States 2.9 2.6 2.2 Turkey 2.9 -1.8 3.2
Note: Difference in percentage points based on rounded figures. Dark red for downward revisions of 0.6 percentage points and more. Dark
green and dark orange for, respectively, upward and downward revisions of 0.3 percentage points and more but less than 0.6 percentage
points. Light green and light orange for, respectively, upward and downward revisions of less than 0.3 percentage points. The European
Union is a full member of the G20, but the G20 aggregate only includes countries that are also members in their own right. 4
1. Fiscal years starting in April.Trade growth continues to decelerate
Euro area export volume growth New export orders
Manufacturing
Index 2015-19 average = 100
% y-o-y 3-month moving average
7 115
Intra-EA Extra-EA China Euro area East Asia
6
110
5
105
4
3 100
2
95
1
90
0
-1 85
Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18
Feb-19
Note: RHS: East Asia is a PPP-weighted aggregate of Japan, Korea, Malaysia, the Philippines, Thailand, Taiwan and Vietnam. 5
Source: Markit; Eurostat; and OECD calculations.Trade tensions and policy uncertainty take
a toll on confidence and hiring intentions
Confidence in OECD countries Firms’ hiring intentions
PMI for employment
Business confidence Consumer confidence United States Euro area United Kingdom
Normalised
Index 100 = 2014-2019 average
2.5 108
2.0
106
1.5
104
1.0
0.5 102
0.0 100
2014-2019 average
-0.5
98
-1.0
96
-1.5
-2.0 94
-2.5 92
2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019
Note: LHS panel: Data normalised over the 2014-2018 period; PPP-weighted aggregates of the OECD countries. 6
Source: OECD Main Economic Indicators database; Markit; and OECD calculations.VULNERABILITIES IN CHINA,
EUROPE AND FINANCIAL
MARKETS COULD DERAIL THE
GLOBAL ECONOMY
7A slowdown in China
would weigh on growth across the world
GDP growth impact of a negative demand shock of 2% pts in China
%, difference from baseline in the first year
% Trade Uncertainty
0.0
-0.1
-0.2
-0.3
-0.4
-0.5
-0.6
United States Euro area Germany Japan Commodity East Asia World
exporters
Note: Simulated impact of a decline of 2 percentage points per year in domestic demand growth in China for two years. The uncertainty shock
is a 50 basis point increase in investment risk premia in all economies. Policy interest rates are endogenous in all areas. Commodity exporters
include Argentina, Australia, Brazil, Chile, Indonesia, Russia, South Africa and the other oil producers. East Asia includes Chinese Taipei,
Hong Kong (China), Korea, Singapore, Vietnam and other East Asian countries. Regions are weighted using purchasing power parities. 8
Source: OECD calculations.Slower credit growth may weaken the euro
area further
Sovereign bond yields Credit growth
10-year government bond yield Bank credit to non-financial corporations
% Germany France Italy Spain
Italy Germany France Spain
8 % y-o-y
7.5
7
5.0
6
2.5
5
0.0
4
-2.5
3
2 -5.0
1 -7.5
0 -10.0
-1 -12.5
2010 2012 2014 2016 2018 2019 2010 2012 2014 2016 2018 2019
Note: RHS: Credit growth of loans adjusted for sales and securitisation, non-financial corporations. 9
Source: Thomson Reuters; and OECD calculations.The UK economy has been weakening
since the Brexit referendum
Real GDP loss since the 2016 referendum Investment has declined
Germany, France and the United States United Kingdom OECD
United Kingdom: Actual Index 2016Q2 = 100
United Kingdom: Pre-referendum OECD projections 109
Index 2016Q2 = 100
106 108
1.7% 107
105
0.7% 106
104
105
103 104
102 103
102
101
101
100
100
99 99
2016 2017 2018 2016 2017 2018
Note: LHS: The green line is a GDP-weighted average of France, Germany and the United States. 10
Source: OECD Economic Outlook database; and OECD calculations.A combination of these risks could further
weaken euro area growth
Bilateral share of goods exports
2017
United Kingdom Italy Germany China Total exports in % of GDP (rhs)
% of total exports % of GDP
50 100
40 80
30 60
20 40
10 20
0 0
Note: Black triangles represent the share of total goods export in % of GDP. Data as of 2016 for the Netherlands. 11
Source: OECD International Merchandise Trade Statistics database; OECD Economic Outlook database; and OECD calculations.Pressure on EMEs has eased but
vulnerabilities persist
EME sovereign bond yield spreads have Record level of corporate bond repayments
declined ahead
Emerging market economies
Turkey
Turkey Argentina
Argentina GlobalEMEs
Global EMEs % pts Due in year 3 Due in year 2
%%pts
pts
Due in year 1 Due within next 3 years (rhs)
99 9
USD billion % of outstanding
1400 50
88 8
1200
77 7 40
1000
66 6
30
800
55 5
600
20
44 4
400
33 3 10
200
22 2
Jan-17
Jan-17 Jul-17
Jul-17 Jan-18
Jan-18 Jul-18
Jul-18 Jan-19
Jan-19
Mar-19 0 0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Note: LHS panel: Global EMEs stands for JP Morgan Emerging Bond Index (EMBI), which measures the yield spread between EMEs’
government bonds denominated in US dollars and US Treasuries.
12
Source: Thomson Reuters; Çelik, S., G. Demirtaş and M. Isaksson (2019), “Corporate Bond Markets in a Time of Unconventional Monetary
Policy”, Paris; and OECD Capital Market Series.GOVERNMENTS SHOULD
COOPERATE TO REDUCE RISKS
13Interest rates are set to stay low
for longer
Expected overnight interest rates 10-year government bond yields
for end-2019
Market expectations
United States Germany
Euro area United Kingdom Japan United States % United Kingdom Euro area
%, 15-day m.a. 3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
0.5 1.0
0.0 0.5
-0.5 0.0
2017 2018 2019 2017 2018 2019
14
Source: Thomson Reuters; and OECD calculations.Public debt levels vary between countries but
trend growth is low in most euro area countries
Potential GDP per capita growth and public debt
More scope for
Public Debt in 2017, structural reforms
% of GDP
180
Greece More
160 fiscal
space
140 Italy
Portugal
120
Belgium
France
100
Spain
Austria Slovenia
80
Finland Germany
Ireland
60 Slovak Rep.
Netherlands
40
Latvia
20
0 1 2 3 4 5
Potential GDP per capita growth in 2017-2019, % average annual change
Note: Public debt is based on Maastricht criteria. 15
Source: OECD Economic Outlook database; and OECD calculations.Euro area: coordinate fiscal support and structural
reforms to avoid a downturn and spur wages
Impact of structural reforms and a coordinated 3-year fiscal stimulus
in countries with fiscal space in the euro area
GDP Wages per employee
Real, difference from baseline, per cent Real, difference from baseline, per cent
% Fiscal stimulus in countries with fiscal space %
0.9 0.9
Structural reforms only
0.8 0.8
0.7 0.7
0.6 0.6
0.5 0.5
0.4 0.4
0.3 0.3
0.2 0.2
0.1 0.1
0.0 0.0
2019 2020 2021 long-run 2019 2020 2021 long-run
Note: The level of technical progress is gradually raised by 1% by the fifth year in all countries, and countries with fiscal space also increase
government investment by 0.5% of GDP for three years. Euro area monetary policy is assumed to be set in a way that takes into account the
eventual long-run improvement in output. Countries with fiscal space here include Germany, the Netherlands, Austria, Finland, Ireland, Slovak
Republic, Slovenia, Estonia, Latvia, and Lithuania. 16
Source: OECD calculations.Key messages
Growth is weakening particularly in Europe
• Uncertainty is weighing on confidence, trade, investment and employment prospects
• EU trade has slowed sharply, contributing to weaker-than-expected growth in Europe
Vulnerabilities in China, Europe and financial markets could derail the global
economy
• A sharper slowdown in China would weigh on global growth and could weaken growth
in Europe further
• Political uncertainty in Europe is high and could weaken credit growth
• Challenges persist in financial markets and some EMEs
Governments should cooperate to reduce risks
• Intensify multilateral dialogue globally and in Europe to reduce policy uncertainty
• Central banks should remain supportive but cannot and should not act alone
• Euro area governments should coordinate a fiscal and structural push
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