OECD economic outlook : may 2019

230 Pages·2019·3.617 MB·English

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OECD
ECONOMIC
OUTLOOK
105
MAY 2019
This work is published under the responsibility of the Secretary-General of the OECD. The
opinions expressed and arguments employed herein do not necessarily reflect the official
views of OECD member countries.
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Please cite this publication as:
OECD (2019), OECD Economic Outlook, Volume 2019 Issue 1, No. 105, OECD Publishing, Paris,
https://doi.org/10.1787/b2e897b0-en.
ISBN 978-92-64-51192-7 (print)
ISBN 978-92-64-31947-9 (pdf)
ISBN 978-92-64-55359-0 (HTML)
OECD Economic Outlook
ISSN 0474-5574 (print)
ISSN 1609-7408 (online)
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 3
Table of contents
Editorial A fragile global economy needs urgent cooperative action 7
1 General assessment of the macroeconomic situation 11
Introduction 12
Global growth is set to remain weak 13
Key issues and risks 27
Policy considerations 36
References 51
Annex 1.A. Policy and other assumptions underlying the projections 54
2 Digitalisation and productivity: A story of complementarities 55
Introduction and overview 56
Digitalisation has accelerated but remains incomplete 60
Digitalisation can support productivity in various ways 63
Complementarities and main policy challenges 67
References 79
3 Developments in individual OECD and selected non-member economies 85
Argentina 86
Australia 89
Austria 92
Belgium 95
Brazil 98
Canada 102
Chile 106
China 109
Colombia 113
Costa Rica 116
Czech Republic 119
Denmark 122
Estonia 125
Euro area 128
Finland 132
France 135
Germany 138
Greece 141
Hungary 144
Iceland 147
India 150
OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1 © OECD 2019
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Indonesia 153
Ireland 156
Israel 159
Italy 162
Japan 166
Korea 170
Latvia 173
Lithuania 176
Luxembourg 179
Mexico 182
Netherlands 185
New Zealand 188
Norway 191
Poland 194
Portugal 197
Slovak Republic 200
Slovenia 203
South Africa 206
Spain 209
Sweden 212
Switzerland 215
Turkey 218
United Kingdom 221
United States 224

FIGURES
Figure 1.1. Global growth has lost momentum 14
Figure 1.2. Industrial and service sector output have recently diverged 15
Figure 1.3. Manufacturing and service sectors inter-linkages 16
Figure 1.4. Global trade growth has slowed 18
Figure 1.5. The slowdown in trade growth has been particularly sharp in Europe and China 18
Figure 1.6. Weaker investment has contributed to the trade slowdown 19
Figure 1.7. Global growth is set to remain modest 20
Figure 1.8. Global trade growth is set to remain subdued 22
Figure 1.9. Labour market conditions are improving in most economies 23
Figure 1.10. Wage and productivity growth remain moderate in the advanced economies 24
Figure 1.11. Moderate headline inflation is expected to persist in many advanced and emerging-market
economies 25
Figure 1.12. Factors behind low inflation in the euro area 26
Figure 1.13. The adverse effects from higher US-China tariffs could intensify further 28
Figure 1.14. A sharper slowdown in China would hit growth and trade around the world 30
Figure 1.15. Trade linkages with China remain more important than financial linkages 31
Figure 1.16. The debt of non-financial corporations has increased in many OECD economies 32
Figure 1.17. Credit quality of non-financial corporate bonds has deteriorated globally 33
Figure 1.18. Leveraged loans outstanding in Europe and in the United States 34
Figure 1.19. Changes in equity prices seem to be disconnected from expected corporate earnings 35
Figure 1.20. Market sentiment vis-à-vis emerging-market economies has improved 36
Figure 1.21. Monetary policy remains highly expansionary 37
Figure 1.22. The use of borrower-based macroprudential measures 40
Figure 1.23. Projected fiscal positions 41
Figure 1.24. Interest payments on government debt have declined in many countries despite higher debt 43
Figure 1.25. Higher nominal GDP growth could create additional fiscal space in the medium term if monetary
policy does not react 43
OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1 © OECD 2019
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Figure 1.26. The need and room for fiscal stimulus differs across OECD countries 44
Figure 1.27. The impact of combined policy support in the euro area 47
Figure 1.28. The pace of reforms and potential output growth have both slowed 49
Figure 1.29. Infrastructure gaps are an obstacle to business investment in Europe 50
Figure 1.30. Infrastructure gaps are associated with lower broadband speeds and lower adoption of digital
technologies 50
Figure 2.1. Productivity growth has declined sharply across OECD countries 57
Figure 2.2. Productivity dispersion across firms has increased, especially in digital intensive sectors 58
Figure 2.3. Internet access and adoption of digital technologies are increasing 61
Figure 2.4. Digitalisation has been uneven across countries 62
Figure 2.5. Online platforms are developing fast, but unevenly across countries 63
Figure 2.6. Adoption of digital technologies has supported firm productivity 65
Figure 2.7. Online platforms can enhance the productivity of service firms 66
Figure 2.8. More productive firms have benefitted more from digitalisation 68
Figure 2.9. A range of policies can support productivity by promoting greater diffusion of digital technologies 69
Figure 2.10. Skill shortages reduce digitalisation gains, especially among less productive firms 70
Figure 2.11. Many adults lack digital skills in OECD countries 71
Figure 2.12. Increased access to high-speed internet is associated with higher productivity 72
Figure 2.13. Business dynamism has been trending down 73
Figure 2.14. Non-contestable platform markets generate weaker productivity gains 76
Figure 2.15. There are large cross-country differences in barriers to digital trade 77
Figure 2.16. The uptake of digital government services differs significantly across countries 78

TABLES
Table 1.1. Global growth remains weak 12
Table 1.2. The use of counter-cyclical buffers 39

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OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1 © OECD 2019
 7
Editorial

A fragile global economy needs
urgent cooperative action
A year ago, the OECD warned about how trade and policy uncertainties could significantly damage the
world economy and further contribute to the growing divide between people. A year later, global momentum
has weakened markedly and growth is set to remain subpar as trade tensions persist. Trade and
investment have slowed sharply, especially in Europe and Asia. Business and consumer confidence have
faltered, with manufacturing production contracting. In response, financial conditions have eased as central
banks have moved towards more accommodative monetary stances, while fiscal policy has been providing
stimulus in a handful of countries. At the same time, low unemployment and a slight pick-up in wages in
the major economies continue to support household incomes and consumption. Overall, however, trade
tensions are taking a toll and global growth is projected to slow to only 3.2% this year before edging up to
3.4% in 2020, well below the growth rates seen over the past three decades, or even in 2017-18.
While growth was synchronised eighteen months ago, divergence has emerged between sectors and
countries depending on their exposure to trade tensions, the strength of fiscal responses and policy
uncertainties. The manufacturing sector, where global value chains prevail, has been hit hard by tariffs and
the associated uncertainty on the future of trade relationships, and is likely to stay weak. Business
investment growth, also strongly linked to trade, is set to slow to a mere 1¾ per cent per year over 2019-20,
from around 3½ per cent per year during 2017-18. However, services, less subject to trade jitters and
where most job creation takes place, continue to hold up well. In parallel, growth has weakened in most
advanced economies, especially those where trade and manufacturing play an important role, such as
Germany and Japan, with GDP growth projected to be below 1% in both countries this year. In contrast,
the United States has maintained its momentum thanks to sizeable, albeit waning, fiscal support.
Divergence is also visible among emerging-market economies, with Argentina and Turkey struggling to
recover from recession, while India and others are benefitting from easier financial conditions and in some
instances fiscal or quasi-fiscal support.
Moreover, the global economy remains largely dependent on persistent policy support. Ten years after the
financial crisis, with subdued inflation, central bank balance sheets remain at unprecedented levels,
interest rates - short and long-term - are historically low, and government debt, except for a few cases, is
much larger. With a few exceptions, emerging-market economies have kept large reserve buffers. In short,
central banks have barely normalised the monetary policy stance and their support remains essential.

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Overall, in spite of unprecedented policy support in the wake of the global financial crisis, the recovery has
not been vigorous and lasting enough to translate into higher wages and better standards of living.
Since 2010, real GDP per capita, an imperfect proxy for living standards, has increased by only 1.3% per
annum in the median OECD country. Even though unemployment is at its lowest rate in nearly four
decades, real wages are projected to grow by less than 1.5% per year in 2019-20, below the 2% pace in
the decade prior to the crisis in the typical OECD economy. This means that, ten years after the crisis,
standards of living have improved too slowly to significantly reduce inequalities, which had widened for the
two decades running up to the crisis. For example, for median households in the large advanced
economies, the pace of increase in real disposable income has fallen since the crisis, except in the
United States.
The outlook remains weak and there are many downside risks that cast a dark shadow over the global
economy and people’s well-being.
 First, the mediocre growth outlook is conditional on no escalation of trade tensions, which cut
across the Americas, Asia and Europe. Simulations in this Outlook’s first chapter show that
renewed tensions between the United States and China could shave more than 0.6% from global
GDP over two to three years.
 Second, manufacturing and services do not work in isolation. While services have remained
buoyant, providing a buffer, it is unlikely that they decouple for long from manufacturing. More than
a third of manufacturing gross exports comes from services, and services contribute, directly or
indirectly, to more than half of global exports. In addition, manufacturing crucially depends on
investment, which is not only an engine of growth and employment today but also shapes
tomorrow’s growth and living standards.
 Third, China remains a source of concern, as the deployment of monetary, fiscal and quasi-fiscal
tools not only has uncertain effects on activity, but might continue to fuel non-financial corporate
debt, already at a record high level. We estimate that a 2-percentage point reduction in domestic
demand growth in China, sustained for two years and combined with heightened uncertainty, could
reduce global GDP by 1¾ per cent by the second year.
 Finally, private sector debt is growing fast in major economies. The global stock of non-financial
corporate bonds has almost doubled in real terms compared with 2008, at close to USD 13 trillion,
and the quality of debt has been deteriorating, including a heightened stock of leveraged loans. A
new bout of financial stress could erupt.
Looking ahead, trade tensions are not only hurting the short-term outlook but also medium-term prospects,
calling for urgent government action to reinvigorate growth. The global economy was expanding in sync
less than two years ago, but challenges to existing trade relationships and the multilateral rules-based
trade system have now derailed global growth by raising uncertainty that is depressing investment and
trade. The post-World War II process of globalisation driven by multilateral agreements that allowed
ever-increasing trade openness is being challenged.
Against this backdrop, we strongly urge governments to use all the policy tools at their disposal. Primarily,
based on a common diagnosis about trade issues, taking into account the interdependence of economies
with production chains split across borders, it is imperative to reignite multilateral trade discussions. Then
where demand is weak, in the euro area for example, rather than further relying on monetary policy,
governments should take advantage of the low-interest rate environment to complement structural efforts
with fiscal stimulus where public debt is relatively low. Such a combination can address the current
weakness, enhance resilience and boost long-term growth in a sustainable way for the benefit of all. Policy
priorities include investing in infrastructure, especially digital, transport and green energy, enhancing
people’s skills, and more generally implementing policies that favour equal opportunities. For example, in
the euro area, combining structural reforms that lift productivity growth by 0.2 percentage point per year
for five years and a three-year fiscal stimulus of the order of 0.5% of GDP in countries with lower debt to
OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1 © OECD 2019