OECD INTERIM ECONOMIC OUTLOOK
Warning: low growth ahead 19 September 2019
Laurence Boone OECD Chief Economist http://www.oecd.org/economy/outlook/ ECOSCOPE blog: oecdecoscope.wordpress.com
Key messages
The global economic outlook continues to darken
Trade and political tensions fuel risks of persistent low growth Governments can reverse the spiralling costs of uncertainty and invest more 2
Global growth is weakening G20 Advanced
G20 Emerging
GDP projections, %, year-on-year
GDP projections, %, year-on-year
November 2018
May 2019
September 2019
November 2018
May 2019
September 2019
2.6
2.6
5.6
5.6
2.4
2.4
5.4
5.4
2.2
2.2
5.2
5.2
2.0
2.0
5.0
5.0
1.8
1.8
4.8
4.8
1.6
1.6
4.6
4.6
1.4
1.4
4.4
4.4
1.2
1.2
4.2
4.2
2017
2018
2019
2020
2017
2018
2019
2020
Note: G20 advanced economies are Australia, Canada, France, Germany, Italy, Japan, Korea, the United Kingdom and the United States. G20 emerging economies are Argentina, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa and Turkey. Source: OECD Economic Outlook database; and OECD calculations.
3
GDP growth projections downgraded OECD Interim Economic Outlook projections %, year-on-year. Arrows indicate the direction of revisions since May 2019. downward by 0.6 pp and more
World Australia Canada Euro area Germany France Italy Japan Korea United Kingdom United States
downward by 0.3 to 0.6 pp
2018 3.6
2019 2.9
2020 3.0
2.7 1.9 1.9 1.5 1.7 0.7 0.8 2.7 1.4 2.9
1.7 1.5 1.1 0.5 1.3 0.0 1.0 2.1 1.0 2.4
2.0 1.6 1.0 0.6 1.2 0.4 0.6 2.3 0.9 2.0
downward by less than 0.3 pp
G20 Argentina Brazil China India1 Indonesia Mexico Russia Saudi Arabia South Africa Turkey
no revision
upward
2018 3.8
2019 3.1
2020 3.2
-2.5 1.1 6.6 6.8 5.2 2.0 2.3 2.2 0.8 2.8
-2.7 0.8 6.1 5.9 5.0 0.5 0.9 1.5 0.5 -0.3
-1.8 1.7 5.7 6.3 5.0 1.5 1.6 1.5 1.1 1.6
Note: Difference in percentage points based on rounded figures. 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. 1. Fiscal years starting in April. Source: OECD Economic Outlook database; and OECD calculations.
4
Trade growth is stalling as restrictions bite New trade restrictions in the G20
World trade growth
Trade coverage of measures introduced in each period
Goods and services, volumes
USD billion 500 450 400 350 300 250 200
10
%
Quarterly (a.r.)
Year-on-Year
8 6 4 2
150 100 50 0
0 -2 -4
2016
2017
2018
Note: Left: These figures are estimates and represent the trade coverage of the measures (i.e. annual imports of the products concerned in economies affected by the measures) introduced since the last date and not the cumulative impact of the trade measures. Source: OECD Economic Outlook database; OECD-UNCTAD-WTO report on G20 trade and investment measures; and OECD calculations.
2019Q2
5
Uncertainty is dragging down manufacturing and investment Investment growth
Industrial production
G20 fixed investment World
Germany
United States
%, y-o-y
%, y-o-y
6
6 4
5
2
4
0
3
-2
2
-4
1
-6 2014
2015
2016
2017
2018
2019
0 2016
2017
2018
Note: Left: Industrial production aggregation uses PPP weights. Right: China and Saudi Arabia not included due to unavailability of quarterly data. Source: OECD Economic Outlook database; US Federal Reserve; Eurostat; Ministry and Trade and Industry, Japan; KOSIS; and OECD calculations.
2019Q1
6
Job creation is slowing Employment growth %, y-o-y 2.1
2016-17
2018
2019H1
Hiring intentions United States
Germany
Euro area
2017
2018
Japan
Index, 3mma
58 1.8
57 56
1.5
55 1.2
54 53
0.9
52 0.6
51 50
0.3 0
49 Euro area
Japan
United States
48 2016
Note: Left: 2019H1 is annualised. Right: PMI for employment in manufacturing and services. Source: OECD Economic Outlook database; Markit; and OECD calculations.
2019 7
TRADE AND POLITICAL TENSIONS FUEL RISKS OF PERSISTENT LOW GROWTH
8
Trade conflicts are entrenching uncertainty and risk long-lasting harm to investment Impact of 2019 US-China trade restrictions Difference from baseline after 2 to 3 years
Business investment
%
GDP
%
0.0
0.0
0.0
0.0
-0.5
-0.5
-0.2
-0.2
-1.0
-1.0
-0.4
-0.4
-1.5
-1.5
-0.6
-0.6
-2.0
-2.0
-0.8
-0.8
-2.5
-2.5
-1.0
-1.0
-3.0
-3.0
-1.2
-1.2
China
United States
Euro area
Japan
China
United States
World
Note: Total investment for China. The scenario shows the impact of: the United States raising tariffs on USD 200 billion of imports from China from 10% to 25% from mid-May 2019 (with reciprocal action by China on USD 60 billion of imports from the United States); the US further raising tariffs to 30% on USD 200 billion of imports to China in October and implementing tariffs of 15% on USD 110 billion and USD 160 billion of remaining imports from China in September and December 2019 respectively, with China assumed to react proportionately to these changes by raising tariffs on imports from the United States; and 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.
9
A no-deal Brexit would have large costs UK GDP
Euro area GDP
%, difference from baseline
%, difference from baseline
2020
2021
2022
2020
2021
2022
0.0
0.0
0.0
0.0
-0.5
-0.5
-0.2
-0.2
-1.0
-1.0
-0.4
-0.4
-1.5
-1.5
-0.6
-0.6
-2.0
-2.0
-0.8
-0.8
-2.5
-2.5
-1.0
-1.0
-3.0
Direct effects
Uncertainty
-3.0
-1.2
Direct effects
Uncertainty
Note: The direct effects include a decline in UK export volumes, declines in EU countries’ exports with the impact on individual countries dependent on the extent of their direct trade with the UK, a depreciation of the sterling upon exit, a decline in labour-augmenting technical progress due to lower trade openness and a decline in net inward migration. The uncertainty effect captures a rise in investment risk premia. No monetary and fiscal policy response is assumed beyond already announced measures, which are incorporated in the baseline. Source: OECD calculations, using the NiGEM global macroeconomic model.
-1.2
10
A no-deal Brexit would lead to sectoral disruptions in European economies Impact of a no-deal on production by sector, medium to long term %, difference from baseline
UK
-24
-20
-16
-12
-8
-4
EU27 Chemicals
Chemicals
Machinery & equipment
Machinery & equipment
Metals
Metals
Agri-food
Agri-food
Transport equipment
Transport equipment
Materials manufacturing
Materials manufacturing
Electronic equipment
Electronic equipment
0
Note: Production in volume. Source: OECD calculations using the OECD METRO model.
-2.0 -1.6 -1.2 -0.8 -0.4 0.0 11
Investors hold massive amounts of risky debt Investment-grade corporate bonds
Corporate leveraged loans outstanding
% share of bond issuance, by rating
% 100
80
AAA
AA
A
USD billion
BBB
2.5
USD 499 bln
60
Highly-leveraged loans in Europe Highly-leveraged loans in the United States Leveraged loans in Europe Leveraged loans in the United States
2.0
1.5
40
1.0 USD 336 bln
20
0.5 USD 91 bln
0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
0.0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Note: Left: Only non-financial companies rated by S&P, Fitch and/or Moody’s. Right: The outstanding amount is calculated based on nonfinancial corporate 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).
12
The long-term decline in trend growth could persist OECD economies Trend GDP growth
%, y-o-y 4.0
Trend labour productivity growth
%, y-o-y 4.0
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0 2018
1975
1980
1985
1990
1995
2000
2005
Note: Solid lines are linear projections. Trend GDP growth is the growth rate of potential output. Source: OECD Economic Outlook database.
2010
2015
13
GOVERNMENTS CAN REVERSE THE SPIRALING COSTS OF UNCERTAINTY AND INVEST MORE
14
Monetary policy: little room for manoeuvre in advanced economies Yield curves on government bonds United States % 5
Sep-2019
Sep-2018
Japan
Euro area % 5
Sep-2019
Sep-2018
% 5
4
4
4
3
3
3
2
2
2
1
1
1
0
0
0
-1
-1
-1
0 3 6 9 12 15 18 21 24 27 30 maturity (years)
0 3 6 9 12 15 18 21 24 27 30
maturity (years)
Note: Yield curves on benchmark government bonds as of 16 September 2019. Source: Refinitiv; and ECB.
Sep-2019
Sep-2018
0 3 6 9 12 15 18 21 24 27 30 maturity (years) 15
Fiscal and structural policies should accompany central bank efforts in the Euro area
QE
Real GDP, euro area
Asset prices after five years
%, difference from baseline
%, difference from baseline QE
With public investment and structural reforms
2.0
16
1.8
14
1.6
With public investment and structural reforms
12
1.4
10
1.2 1.0
8
0.8
6
0.6
4
0.4 0.2
2
0.0
0
Year 1
Year 2
Year 5
Long run
House prices
Equity prices
Note: The QE scenario is calibrated to the measures introduced by the ECB in 2015. The scenario with public investment and structural reforms includes a rise in public investment by ž percent of GDP for five years, productivity-enhancing structural reforms that rise total factor productivity growth by 0.2 percentage points each year for five years, and a fifty percent smaller QE programme. Source: OECD calculations, using the NiGEM global macroeconomic model.
16
Restoring business confidence would revive investment Index, 3mma
Economic policy uncertainty index (lhs)
Business confidence (rhs)
Index
350
102.0
300
101.5
250
101.0
200
100.5
150
100.0
100
99.5
50
99.0
0
98.5 2011
2012
2013
2014
Note: The last data point is August 2019. Both series are global. Source: policyuncertainty.org; Markit; and OECD calculations.
2015
2016
2017
2018
2019
17
Meeting infrastructure investment needs would help escape the risk of persistent low growth Infrastructure investment needs Global annual average spending needs by 2030 Road Primary energy supply Water and sanitation Power and electricity Telecoms Energy demand/efficiency Rail
Airports and ports 0.0
0.5
1.0
1.5 2.0 2.5 Trillion USD, 2015 prices
Note: The scenario does not include the additional investments needed to meet carbon emissions targets. Source: OECD Technical note on estimates of infrastructure investment needs, 2017.
18
Key messages The global outlook continues to darken • Growth continues to slow in advanced and emerging economies • Investment is taking a hit as high policy uncertainty feeds a collapse in trade growth and a manufacturing slump • Consumption is holding up but is threatened by slowing job growth
Trade and political tensions fuel risks of persistent low growth • Escalating trade restrictions are entrenching uncertainty, endangering future growth • A no-deal Brexit would hurt an already weak UK economy and create disruptions across Europe • High private debt of deteriorating quality could amplify the effects of shocks
Governments can reverse the spiraling costs of uncertainty and invest more • Halt the surge in trade-distorting tariffs and subsidies and restore predictable rules for business • Limit the reliance on overstretched monetary policy, think fiscal and structural • Escape the trap of persistent weak growth: undertake public investment 19