__MAIN_TEXT__

Page 1

OECD ECONOMIC OUTLOOK

Trade uncertainty dragging down global growth 21 May 2019

http://www.oecd.org/economy/economic-outlook/ ECOSCOPE blog: oecdecoscope.wordpress.com


Key messages Global economic growth is stabilising at a low level • Trade growth has plunged and investment has slowed due to high uncertainty • Manufacturing is weak, but strong labour markets and services are supporting consumption • A slight pick-up by 2020 will not be enough to boost living standards

Key risks: Trade tensions, China slowdown, high debt • Further increases in trade restrictions would hurt investment, workers and consumers • A sharp slowdown in China would hit activity across the world • Private, often risky, debt is building up

Governments must act urgently to reinvigorate growth that benefits all • Invest in infrastructure, digital transformation and skills to meet tomorrow’s challenges • In the euro area, combine structural with fiscal policies to stimulate activity • Resolve trade disputes through increased international cooperation while fixing the international rules-based system 2


Economic growth has slowed in sync with trade growth World trade volume growth

World GDP growth

Goods and services %

q-o-q a.r.

%

y-o-y

q-o-q a.r.

y-o-y

8.0

4.5

6.0

4.0

4.0 3.5 2.0 3.0 0.0 2.5

2016

2017

2016

2017

2019Q1

2019Q1 -2.0

Note: Figures for the first quarter of 2019 are based on currently available data and projections for the remaining economies. Source: OECD Economic Outlook database.

3


OECD Economic Outlook projections Real GDP growth %, year-on-year

World Australia Canada Euro area Germany France Italy Japan Korea United Kingdom United States

2018 3.5

2019 3.2

2020 3.4

2.7 1.8 1.8 1.5 1.6 0.7 0.8 2.7 1.4 2.9

2.3 1.3 1.2 0.7 1.3 0.0 0.7 2.4 1.2 2.8

2.5 2.0 1.4 1.2 1.3 0.6 0.6 2.5 1.0 2.3

G20

2018 3.8

2019 3.4

2020 3.6

Argentina Brazil China India1 Indonesia Mexico Russia Saudi Arabia South Africa Turkey

-2.5 1.1 6.6 7.0 5.2 2.0 2.3 2.2 0.8 2.6

-1.8 1.4 6.2 7.2 5.1 1.6 1.4 2.5 1.2 -2.6

2.1 2.3 6.0 7.4 5.1 2.0 2.1 1.9 1.7 1.6

Note: The European Union is a full member of the G20, but the G20 aggregate only includes countries that are members in their own right. 1. Fiscal years starting in April.

4


OECD Economic Outlook projections Real GDP growth %, year-on-year

Austria Belgium Chile Colombia Costa Rica Czech Republic Denmark Estonia Finland Greece Hungary Iceland Ireland Israel

2018 2.7 1.4 4.0 2.7 2.7 2.9 1.4 3.9 2.3 1.9 5.0 4.6 6.8 3.3

2019 1.4 1.2 3.4 3.4 2.7 2.6 2.1 3.2 1.5 2.1 3.9 1.0 3.9 3.1

2020 1.6 1.3 3.3 3.6 3.0 2.5 1.7 2.8 1.4 2.0 3.0 2.4 3.3 3.2

Latvia Lithuania Luxembourg Netherlands New Zealand Norway Poland Portugal Slovak Republic Slovenia Spain Sweden Switzerland

2018 4.8 3.5 2.6 2.6 2.8 1.4 5.1 2.1 4.1 4.5 2.6 2.4 2.5

2019 2.7 2.9 2.0 1.6 2.6 1.8 4.2 1.8 3.5 3.4 2.2 1.6 1.0

2020 2.7 2.5 2.5 1.5 2.5 2.1 3.5 1.9 3.4 3.1 1.9 1.6 1.5

5


GDP and trade growth are set to stay weak despite a modest pick-up in 2020 Global GDP growth

Global trade growth

% , year-on-year

%, year-on-year

November projections March projections

November projections

May projections May projections excl. Turkey and Argentina

4.0

6.0

3.9

5.5

3.8

5.0

3.7

4.5

3.6

4.0

3.5

3.5

3.4

3.0

3.3

2.5

3.2

2.0

3.1

1.5

3.0

1.0

2017

2018

Source: OECD Economic Outlook database.

2019

May projections

2020

2017

2018

2019

2020 6


Support has come in the form of more accommodative financial conditions Changes between November 2018 and May 2019 averages Equity prices

10-year government bond yields

CHN ITA ZAF AUS FRA CAN IND EA BRA RUS DEU USA IDN GBR KOR MEX JPN TUR

CHN ITA ZAF AUS FRA CAN IND EA BRA RUS DEU USA IDN GBR KOR MEX JPN TUR -10

0

10

20

30 %

-1.5

Note: May 2019 average refers to the average over the period from April 18 to May 17. Source: Refinitiv; and OECD calculations.

-0.5

0.5

1.5

2.5 % pts 7


Fiscal policy has also provided a buffer, appropriately Fiscal stance % pts of potential GDP 2018

2019 (projected)

2020 (projected)

1.0 0.5 0.0 -0.5

Fiscal easing

-1.0 -1.5

Note: The fiscal stance is defined as the change in the underlying general government primary balance. Source: OECD Economic Outlook database.

8


Manufacturing has deteriorated sharply but services hold up Global PMI Index

Manufacturing

56

Manufacturing new export orders

Services

Improvement

55 54 53 52 51 50 49 48

Decline

2015

2016

2017

2018

2019

9

Source: Markit; and OECD calculations.


Strong labour markets and services are keeping consumption resilient Wage growth

Employment shares by sector

Average annual growth in real wages %

2008-2017

2018-2020 (projected)

2.0

% 100

1.8

90

1.6

80

1.4

70

1.2

60

1.0

50

0.8

40 30

0.6

20

0.4

10

0.2

0

1995-2007

United States

Germany

Japan

0.0

United States

Euro area

Japan

Note: LHS panel: Data are for 2018 for the United States and for 2017 for Germany and Japan. For the United States, public and social sector include education, health, and public administration. Trade and hospitality include wholesale and retail trade, leisure and hospitality, and other services. Transport, finance and business services include transportation and utilities, information, financial activities, and professional and business services. For Germany and Japan, categories correspond to the respective ISIC Rev.4 categories. RHS panel: Growth rates are annualised. Real wages are defined as the ratio of total compensation per employee and the private consumption expenditure deflator. Source: BLS; OECD Employment Outlook database; OECD Economic Outlook database; and OECD calculations.

10


China has launched a sizeable stimulus to offset slowing activity Credit growth

Infrastructure investment

% change of stocks, year-on-year

% change, year-on-year, nominal %

%

Total credit

30

20

25

15

20

Core shadow banking items

10 5

15 0 10 -5 5

0 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19

-10 -15 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19

Note: RHS panel: Core shadow banking includes entrusted loans, trusted loans and undiscounted bankers' acceptances. Source: CEIC; Bank for International Settlements; and OECD calculations.

11


KEY RISKS: TRADE TENSIONS, CHINA SLOWDOWN, HIGH DEBT


Uncertainty is bringing down investment G20 fixed investment Contributions to % change, year-on-year, excluding China and Saudi Arabia % pts 6

United States

Euro area 'Big 3'

India

Other G20 advanced

Other G20 emerging

G20

5 4 3 2 1 0

-1 -2

2013

2014

2015

2016

2017

2018

Note: China and Saudi Arabia are not included due to lack of quarterly national accounts data. The euro area aggregate includes only Germany, France and Italy. Source: OECD Economic Outlook database; and OECD calculations.

13


Higher tariffs on US-China trade could hit growth further Impact on the level of GDP and trade by 2021-22 % difference from baseline Tariff increases introduced in May 0.0

USA GDP

China GDP

Tariffs extended to the rest of US-China trade World GDP

World trade

Higher uncertainty Trade excl. USA and China

-0.2 -0.4 -0.6 -0.8 -1.0 -1.2

-1.4 -1.6 -1.8 Note: The first scenario shows the impact of the United States raising tariffs on $200 billion of imports from China from 10% to 25% from mid-May 2019 (with reciprocal action by China on $60 billion of imports from the United States). The second scenario shows the additional impact if tariffs of 25% are imposed on all remaining bilateral non-commodity trade between China and the United States from July 2019. The final scenario adds in the impact from a global rise of 50 basis points in investment risk premia that persists for three years before slowly fading thereafter. All tariff shocks are maintained for six years. Based on simulations on NiGEM in forward-looking mode. Source: OECD calculations.

14


China is key to a fragile economic growth Effect of weaker demand growth in China Export volumes 0

% difference from baseline, second year United Euro Commodity East States area Japan exporters Asia World

GDP at constant prices 0.0

% difference from baseline, second year United Euro Commodity East States area Japan exporters Asia World

-0.2 -1

-0.4 -0.6

-2

-0.8 -1.0

-3

-1.2 -1.4

-4

-1.6 -1.8

-5

-2.0

Note: Simulated impact of a two-year decline of 2 percentage points per annum in domestic demand growth in China, and a rise of 50 basis points in investment risk premia and decline of 10% in equity prices in all economies. The blue bars show the contribution from the direct slowdown in trade; the green bars show the additional contribution from adding higher uncertainty; the brown bars show the contribution from lower equity prices; and the orange bars show the additional effects if monetary policy is not able to act. Commodity exporting economies include Argentina, Brazil, Chile, Indonesia, Russia, South Africa and other non-OECD oil-producing economies. East Asia includes Korea and the Dynamic Asian Economies. Source: OECD calculations using NiGEM.

15


The return of excess finance Leveraged loans outstanding

Investment-grade corporate bonds % share of bond issuance, by rating

USD trillion 2.5

Highly-leveraged loans in Europe Highly-leveraged loans in the United States Leveraged loans in Europe Leveraged loans in the United States

% 100

AA

A

BBB

80

2.0

60

1.5

1.0

40

0.5

20

0.0

AAA

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Note: LHS panel: The outstanding amount is calculated based on loan issuance but excludes the value of drawn and undrawn revolving credit facilities. A linear amortisation schedule is assumed for term loans and other amortising loans (i.e., mortgages, equipment, construction, . commercial loans). All other term loans are not amortised as they are repayable at maturity. To account for loan re-financing, a 40% early repayment ratio is assumed. Source: Patalano and Roulet (2019); and Çelik and Isaksson (2019).

16


GOVERNMENTS MUST ACT URGENTLY TO REINVIGORATE GROWTH THAT BENEFITS ALL


Insufficient infrastructure is holding back private investment % of firms naming insufficient infrastructure as an obstacle to investment in Europe %

80

Digital infrastructure

Transport infrastructure

70

60 50 40 30 20 10 0

SVK LVA ITA DEU IRL AUT EU ESP BEL POL CZE FRA PRT GRC LTU GBR SWE LUX FIN SVN DNK NLD EST HUN 18

Source: European Investment Bank Investment Survey, 2018.


Better digital infrastructure is needed to boost competitiveness and bridge regional divides Share of households with internet broadband access % of total households Emerging-market economies

Advanced economies %

Minimum Capital Region

100

Flevoland

Country average Hamburg

Greater London

80

British Columbia

70

Overijssel

Lombardy

ĂŽle-deFrance

New Hampshire

80

Country average

Maximum

Federal City of Saint Petersburg Baja California Sur Istanbul

60

Tasmania

Brandenburg

Minimum 100

Madrid

North East England

%

Australian Capital Territory

Gangwon Region

90

Maximum

Quebec

Galicia

40 Calabria

60 50

Corsica Mississippi

20

Republic of Ingushetia Chiapas

0

. Note: Data for 2017 or latest available. Large regions follow the OECD Territorial level 2 (TL2) classification. Source: OECD Regional Statistics database.

Eastern Anatolia East

19


People need investments in skills to prepare for the future Share of workers in occupations at high risk of automation by income class % 45

Middle income

Lower income

Upper income

40 35 30 25 20 15 10 5 0

FIN KOR USA DNK NLD GBR EST CZE IRL AUT FRA DEU OECD ISR POL GRC ESP SVN SVK

Note: “Lower income” households defined as those with income below 75% of the national median. “Middle income” households are households with income between 75% and twice the national median. “Upper income” households are households with income over twice the national median. The risk of automation is calculated as the average of the risks of automation by occupation, weighted by the share of each occupation in the income class. Source: OECD calculations based on LIS and PIAAC.

20


Euro area: combine structural with fiscal action to improve growth and living standards Combined impact of structural reforms and a 3-year fiscal stimulus in countries with fiscal space Real GDP

Real wages per employee

Difference from baseline

Difference from baseline

Fiscal stimulus in countries with fiscal space Structural reforms only

% 0.9

% 0.9

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

2022

Long-run

2019

2020

2021

2022

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 per annum 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 and the Netherlands. Source: OECD calculations.

Long-run

21


Some countries have fiscal space and insufficient investment Current account balance

Interest rate minus GDP growth (r-g) 2016-2018

% of GDP

2

12

1

10

0

8

-1

6

-2

4

-3

More fiscal space

2

-4

0

-5

-2

-6

-4

-7

-6

EST SWE LUX FIN KOR IRL LVA CAN CHE NLD DEU AUT GBR SVK JPN ESP BEL LTU PRT USA FRA GRC ITA SVN

2018

NLD CHE IRL DEU SVN LUX KOR JPN ITA AUT SWE EST LTU ESP PRT FRA LVA BEL FIN AUS USA SVK CAN GRC GBR

% pts

Note: r-g is the difference between the effective interest rate paid on net debt (r) and nominal GDP growth (g) for 2016-2018. r is the weighted difference between the implied interest rate paid on government financial liabilities and the implied interest rate earned on government financial assets, where the weights are the share of financial liabilities and assets in net debt, respectively. Source: OECD Economic Outlook database; and OECD calculations.

22


Key messages Global economic growth is stabilising at a low level • Trade growth has plunged and investment has slowed due to high uncertainty • Manufacturing is weak, but strong labour markets and services are supporting consumption • A slight pick-up by 2020 will not be enough to boost living standards

Key risks: Trade tensions, China slowdown, high debt • Further increases in trade restrictions would hurt investment, workers and consumers • A sharp slowdown in China would hit activity across the world • Private, often risky, debt is building up

Governments must act urgently to reinvigorate growth that benefits all • Invest in infrastructure, digital transformation and skills to meet tomorrow’s challenges • In the euro area, combine structural with fiscal policies to stimulate activity • Resolve trade disputes through increased international cooperation while fixing the international rules-based system 23

Profile for OECD

Economic Outlook Presentation May 2019  

Economic Outlook Presentation May 2019