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OUTLOOK

China (People’s Republic of)

Costa Rica

Risks are rising

Strong recovery but high unemployment

Economic growth is being supported by stimulus, but is set to edge down further to 6.1% by 2018. At the same time, risks are rising. The economy is undergoing transitions on several fronts. Private investment will be reinvigorated by the removal of entry restrictions in some service industries, but held back by adjustment in several heavy industries. Housing prices are again rising fast in the bigger cities, but working off housing inventories in smaller cities will take time. Consumption growth is set to hold up, especially as incomes rise and urbanisation continues. Reductions in excess capacity will ease downward pressure on producer prices but consumer price inflation will remain low. Import demand for goods will be damped by on-shoring, while services imports, in particular tourism, will grow rapidly. Exports will be held back by weak global demand and loss of competitiveness.

The economy is projected to continue to expand at a strong pace. Growth will be driven by robust household consumption and increased exports due to stronger demand in the US. Investment will be led by public infrastructure planned in the coming years. Inflation is starting to pick up and will return to the central bank’s target range of 2-4% at the end of 2016. Although a strong recovery is under way, unemployment rates remain high, especially for the poor who also suffer from high informality and are increasingly leaving the labour force. Targeted policies are needed to make the labour market more inclusive, especially for women. Improving the quality of education and enhancing the effectiveness of cash transfers would help reduce high poverty. GDP growth

Fiscal policy, including via the policy banks, is very expansionary. Monetary policy prudence is called for so as not to aggravate imbalances. Removing implicit public guarantees and ending bailouts would make for better and more market-based pricing of risk. Corporate debt has risen substantially to high levels and the enterprise sector therefore needs to deleverage. Supply-side reforms to cut excess capacity need to accelerate and bankruptcy of zombie firms be made easier. Leveraged investment in asset markets should be contained and monitored. GDP growth 2013

2016

Current prices CNY trillion

59.5

2017

2018

% real change

6.7

6.4

6.1

Colombia Growth to pick up Economic growth is projected to pick up in 2017 and 2018, driven by stronger external demand and a recovery in agriculture following the end of El Niño. The current account deficit remains high, but is projected to narrow gradually as the sharp peso depreciation contains imports and spurs non-traditional exports. Inequalities remain high despite a slight decline in unemployment. Inflation remains high but is declining as the effects of temporary shocks, such as the past depreciation and weather-related agricultural price hikes, have started to wane. The central bank raised interest rates earlier in the year and managed successfully to contain inflation expectations. Monetary policy can ease gradually as inflation continues to decline. Approving the financial conglomerates law can help reduce risks. Structural reforms in education, health and infrastructure, and reducing informality with reforms in non-wage labour costs, should make growth broader based and more inclusive. GDP growth 2013

42

2016

Current prices CRC trillion

24.8

2017

2017

4.1

4.0

2.1

2.5

Stable growth Stable economic growth is projected for 2017 and 2018. Solid labour demand will push unemployment towards its lowest rate in the last two decades, supporting consumption. Investment was cut sharply in 2016 due to the transition in EU funding programmes, but is projected to rebound in 2017. Rising cost pressures will push consumer price inflation to the 2% target during 2017. The central bank has committed to preventing exchange rate appreciation against the euro until at least the second quarter of 2017, to insure against deflationary forces. The policy rate could then cautiously be lifted, as the deflationary threat recedes, with fiscal policy supporting demand if needed. Structural policies addressing skill shortages and raising productivity would help sustain the expansion and increase inclusiveness. These include expanding childcare, increasing incentives for business R&D and reducing entry and exit barriers for firms. GDP growth 2013

2016

Current prices CZK billion

4 098.1

2017

2018

% real change

2.4

Power of prognosis The OECD Economic Outlook

ISBN 978-92-64-26758-9 www.oecd.org/bookshop 2.9

4.0

Czech Republic

2018

% real change

2018

% real change

For forward-thinking decision makers 2016

Current prices COP trillion

710.5

2013

2.5

2.6

OECD Observer No 308 Q4 2016  
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