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COUNTRY SNAPSHOTS 2017-18

Iceland

Indonesia

Strong growth

Growth to edge up

Economic growth is strong with continued expansion in tourism, robust private consumption and favourable terms of trade. Steep wage gains, employment expansion and large investments are fuelling domestic demand. The capital controls introduced during the financial crisis are being lifted.

GDP growth has been high and is set to edge up in 2017 and 2018. Government infrastructure spending continues to underpin economic activity, and both private consumption and private investment are showing signs of firming. The current account deficit is projected to be stable.

Currency appreciation and low import prices have kept inflation low. Inflationary pressures from wage increases and uncertainty with respect to the lifting of capital controls nevertheless call for a tight monetary stance. Moreover, the central bank should continue using its macro-prudential toolkit to tackle potentially large short-term capital inflows that might follow the lifting of capital controls. Reformed wage bargaining could prevent a future wage-price spiral while improved competition and reduced barriers to entry would boost productivity.

The central bank has eased rates six times since the beginning of the year. The government has released a string of reform packages over the past year to improve the business environment, streamline investment and liberalise inward investment. There should be scope for a few more interest rate cuts in the medium term, as inflation is projected to remain subdued. However, the fiscal balance is deteriorating owing to slower growth and low commodity prices. Public expenditure is being reined in to avoid breaching the legal deficit limit of 3% of GDP.

GDP growth 2013

GDP growth 2016

2017

Current prices ISK billion

1 891.2

OUTLOOK

ECONOMIC OUTLOOK

2018

% real change

4.7

4.1

2013

2016

Current prices IDR trillion

2.5

9 546.1

2017

2018

% real change

5.0

5.1

5.3

India

Ireland

The fastest growing G20 economy

Moderating growth

With projected annual growth of 7.5% in 2017-18, India will remain the fastest growing G20 economy. Private consumption will be supported by the hike in public wages and pensions and by higher agricultural production, on the back of a return to normal rain fall. Private investment will revive gradually as excess capacity in some sectors diminishes, infrastructure projects mature, corporates deleverage, banks clean their loan portfolios, and the Goods and Service Tax (GST) is implemented.

Economic growth is projected to moderate gradually. The economy, particularly exports and investment, is already being slowed by the prospect of Brexit. Nonetheless, the Irish economy will continue to expand on the back of solid domestic demand and strong employment and wage growth.

Despite commendable fiscal consolidation efforts at the central government level, the combined debt of states and central government remains high compared with other emerging economies. Inflation expectations are adjusting down only slowly. Overall there is little room for accommodative policies, although some monetary impulse is still to come, as recent cuts in policy rates are yet to be reflected fully in lower lending rates. Repairing public banks’ balance sheets and improving their governance would support the revival in investment. Creating more and better jobs will require policies to improve the ease of doing business further, in particular faster and more predictable land acquisition, and upgrading social and physical infrastructure.

The fiscal stance is expected to be broadly neutral, exerting a smaller drag on activity than in past years. The government is nevertheless on track to attain its medium-term goal of balancing the budget. Financial conditions will remain supportive overall. Structural reforms should prioritise making economic growth more inclusive by getting more people back into work and revamping the tax and benefit system. GDP growth 2013

2016

Current prices EUR billion

180.0

2017

2018

% real change

4.3

3.2

2.3

GDP growth 2013

2016

Current prices INR trillion

112.7

2017

2018

% real change

7.4

7.6

7.7

OECD Observer No 308 Q4 2016

45

OECD Observer No 308 Q4 2016  
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