Economic Outlook 80 December 2006 by
Mike KENNEDY Head of General Economic Assessment Division OECD Economics Department
1
Plan of the presentation
Where are we now in the conjuncture?
Where do we see the activity and inflation going?
What are the forces contributing to the outlook?
What is happening on the policy front?
2
G ro w thd ifferen tia lsh a v en a rro w ed R ealG D Pg ro w th ,y ear-o n -y ear %
U n itedS tates E u roarea Jap an
6 .0 5 .0
6 .0 5 .0
4 .0
4 .0
3 .0
3 .0
2 .0
2 .0
1 .0
1 .0
0 .0
0 .0
-1 .0
-1 .0
-2 .0
-2 .0
-3 .0
-3 .0 2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
S o u rce:O E C DE co n o m icO u tlo o k8 0d atab ase.
3
C onfidencegenerallyhealthy U nitedStates
Japan
Euroarea
B usiness expectations 4 3 2 1 0 -1 -2 -3 2000
2001
2002
2003
2004
2005
2006
2005
2006
C onsum erconfidence 4 3 2 1 0 -1 -2 -3 2000
2001
2002
2003
2004
N ote: A ll series havebeennorm alisedat theaveragefor theperiodstartingin1985andarepresentedinunits of standarddeviation. M onthlydata, seasonallyadjustedexcept Japan (quarterly, s.a.). Source: O EC DM ainEconom icIndicators.
4
G row threm ain srob u st R ealG D Pgrow th, percent, quarter-on-quarter1 O u tcom es
E stim ates
2005Q 4
2006Q 1
2006Q 2
2006Q 3
2006Q 4
2007Q 1
U nitedS tates
0.4
1.4
0.6
0.4
0.4(+ /-0.5)
0.4(+ /-0.5)
Japan
1.0
0.8
0.4
0.5
0.3(+ /-0.5)
0.5(+ /-0.5)
E uroarea
0.4
0.8
0.9
0.5
0.7(+ /-0.4)
0.6(+ /-0.4)
G erm any
0.3
0.8
1.1
0.6
0.5(+ /-0.5)
0.4(+ /-0.5)
F rance
0.2
0.5
1.2
0.0
0.5(+ /-0.4)
0.6(+ /-0.4)
Italy
0.0
0.8
0.6
0.3
0.5(+ /-0.4)
0.5(+ /-0.4)
U nitedK ingdom
0.7
0.7
0.7
0.7
0.6(+ /-0.3)
0.6(+ /-0.3)
C anada
0.6
0.9
0.5
M ajor7countries
0.4
1.0
0.6
0.4(+ /-0.1) 0.8(+ /-0.5) 0.4
..
0.4(+ /-0.4) 0.5(+ /-0.5)
1. N otes:B asedo aa n a G D Preleasesandhigh-frequencyindicatorspublishedbyN ovem ber202006. S easonallyandin som ecasesalsow orking-dayadjusted. A ggregationsfortheG 7use2000purchasingpow erparityw eights. A ssociatedÂą 1standarderrorrangesareinparentheses. E C DE conom icO utlook80database. Source: O
5
Headline inflation has declined Year-on-year percentage change United States Consumer price index (CPI)
5.0
CPI excluding food and energy
4.5
Volatility-weighted mean
4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2000
01
02
03
04
05
06
Note: The volatility-weighted mean refers to an average of price increases of CPI components weighted by the inverse of the standard deviation of the price second difference. Source : OECD Main Economic Indicators and OECD calculations.
6
Headline inflation has declined Year-on-year percentage change Euro area Harmonised index of consumer prices (HICP) HICP excluding energy and unprocessed food Weighted median
5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2000
01
02
03
04
05
06
Note: The weighted median is, each month, the middle element in the distribution of CPI price changes, that is, the one leaving 50% of the components (in terms of CPI weights) on each side. Source : OECD Main Economic Indicators and OECD calculations.
7
Headline inflation has declined Year-on-year percentage change Japan 3.0
Consumer price index (CPI) CPI excluding food and energy
2.5
Double-weighted mean
2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 2000
01
02
03
04
05
06
1. The double-weighted mean combines original CPI expenditure-based weights and weights related to volatility. It is an average of price increases weighted by the original CPI weights divided by the standard deviation of the price second difference. Source : OECD Main Economic Indicators and OECD calculations.
8
In tr a -O E C D g r o w thg a p sa r en a r ro w in g O E C D a re a ,u n le ssn o te do th erw ise A v e r a g e 1 9 9 4 -2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 8
q 4
q 4
q 4
3 .0 3 .0 2 .9 2 .2
2 .7 2 .6 2 .2 2 .1
2 .7 2 .7 2 .5 1 .9
P e rc e n t 1 R e a lG D Pg r o w th U n ite dS ta te s E u roa re a Ja p a n 2 O u tp u tg a p
2 .7 3 .2 2 .2 1 .0
3 .2 3 .9 1 .7 2 .3
2 .7 3 .2 1 .5 2 .7
3 .2 3 .3 2 .6 2 .8
2 .5 2 .4 2 .2 2 .0
2 .7 2 .7 2 .3 2 .0
-0 .7
-0 .9
-0 .7
-0 .2
-0 .2
-0 .1
U n e m p lo y m e n tr a te3
6 .6
6 .7
6 .5
6 .0
5 .8
5 .7
5 .9
5 .8
5 .7
4 In fla tio n
3 .5
2 .4
2 .1
2 .2
2 .2
2 .1
2 .1
2 .2
2 .1
-2 .3
-3 .4
-2 .7
-2 .0
-2 .0
-2 .0
F isc a lb a la n c e5
1 .Y e a r-o n -y e a rin c re a se ;la stth re ec o lu m n ssh o w th ein c re a seo v e ray e a re a rlie r. 2 .P e rc e n to fp o te n tia lG D P . 3 .P e rc e n to fla b o u rfo rc e . 4 .G D Pd e fla to r.Y e a r-o n -y e a rin c re a se ;la stth re ec o lu m n ssh o w th ein c re a seo v e ray e a re a rlie r. 5 .P e rc e n to fG D P . E C D E c o n o m icO u tlo o k8 0d a ta b a se . S o u rc e :O
9
Actual and predicted synthetic indicator of risk premia Deviation from average (in terms of standard deviations of synthetic indicator) 3
Synthetic Indicator - actual values
Synthetic Indicator - predicted values
2
1
0
-1
-2 1998
99
2000
01
02
03
04
05
06
Source: Update to computations in Sløk, T. and M. Kennedy (2005), "Explaining risk premia on bonds and equities", OECD Economic Studies, No. 40, 2005/1.
10
E nergym arketshavecooled T radebyoilexportingcountries1
W estT exasInterm ediatespotandfuturesprices M onthlyaveragesandfuturesprices,dollarsperbarrel
$billion ports Im
80 70
210 190 170
60
150
50
130
40
110
30
90
2006q2
70 20
50
10
30
0
10
2000 01 02 03 04 05 06 07 08 09 10 11
10
1998q1 1995q1
E xports
30
50
70
90
110 130 150 170 190 210
1. O ilexportingcountriesaredefinedasthosecountriesw hoseoilexports(netofanyim portsofcrudeoil)bothrepresentam inim umoftw othirdsoftheirtotalexportsandareatleastequivalentto approxim ately1percentofw orldexportsofoil.T hecalculationspresentlyusedtodeterm inew hichcountriesm eettheabovecriteriaarebasedon1976-78averages.
Sources:D atastream ,IM FandO E C DInternationalT radeM onthlyStatisticsdatabase.
11
A s s e s s i n g h o u s i n g m a r k e t s a n d t h e i r i m p a c t P r i c e t o r e n t r a t i o s ( % ) : a c t u a l m i n u s f u n d a m e n t a l , f i r s t h a l f o f 2 0 0 6 o r m o s t r e c e n t 8 0 6 0 4 0 2 0
C a n a d a I r e l a n d A u s t r a l i a
N o r w a y D e n m N a e k wr Z e a l a n d
S p a i n
I t a l y F i n l a n d S w e d e n
k
D e n m a r
S t a t e s
U n i t e d
Z e a l a n d
I n t e r e s t r a t e u p b y 1 % ( c a s e 2 )I n t e r e s t r a t e u p b y 2 % ( c a s e 2 )
N e w
N o r w a y
C a n a d a
a
A u s t r a l i
a n d s
N e t h e r l
a n d
4
R e a l G D P a n d c o n s u m p t i o n d u r i n g m a j o r h o u s i n g d o w n t u r n s Y e a r o n y e a r p e r c e n t a g e c h a n g e I n t e r e s t r a t e u p b y 1 % ( c a s e 1 ) I n t e r e s t r a t e u p b y 2 % ( c a s e 1 )
S w i t z e r l
1 0 . 5 0 5
J a p a S wn i t z e r l a n d
4 0
J a p a n
G e r m a n y
2 0
F r Ua n c n e i t e d S t a N t e s e t h e U r l n a i n t e d d s K i n g d o m
0
3 2 1
R e a l G D P R e a l h o u s e h o l d c o n s u m p t i o n
0 1 1 2 1 1 1 0 9 8 7 6 5 4 3 2 101234567891 0 1 1 1 2 Q u a r t e r s a f t e r p e a k S o u r c e : O E C D E c o n o m i c O u t l o o k 8 0 d a t a b a s e a n d O E C D c a l c u l a t i o n s .
12
C u r r e n ta c c o u n tim b a la n c e sa r eg r o w in ga n do ffic ia lr e s e r v e ss o a r in g O ffic a lr e s e r v e s1 $b illio n
5 0 0 0 O ilp ro d u c in gc o u n trie s2 O th e re m e rg in gA s ia3 4 C h in a J a p a n R e sto fth ew o rld
4 5 0 0 4 0 0 0 3 5 0 0 3 0 0 0 2 5 0 0 2 0 0 0 1 5 0 0 1 0 0 0 5 0 0 0 1 9 9 5
1 9 9 7
1 9 9 9
2 0 0 1
2 0 0 3
2 0 0 5
1E n do fy e a re x c e p tfo r2 0 0 6 ,e n do ffirstq u a rte r. 2A fric aa n dM id d leE a st, R u ssia . 3C h in e seT a ip e i, S in g a p o rea n dK o re a . 4C h in a ,P e o p le 'sR e p u b lica n dH o n gK o n g . S o u rc e :O E C D E c o n o m icO u tlo o k8 0d a ta b a se , In te rn a tio n a lM o n e ta ryF u n d .
13
Persistenceofcurrentaccountim balances 20
Crosscountry dispersionof 18 annual changesin thenom inal 16 effectiveexchange rate(% )
14 12 10 8 6
1976
2005
4 2
Crosscountrydispersionofcurrent account positions(%G D P)
0 0
1
2
3
4
5
6
7
8 14
Currencies may be starting to adjust Euro per dollar
0.90
Yen per dollar
130
0.85
120
0.80
110
0.75
100
0.70
90
4 -0 c e D
5 5 -0 -0 r b p Fe A
5 5 -0 -0 n g u Ju A
5 -0 t c O
5 -0 c e D
6 6 -0 -0 r b p Fe A
6 6 -0 -0 g n u Ju A
6 -0 t c O
6 -0 c e D
Source: Datastream.
15
16
17