Recovery on track

Economics Department

The cautious recovery the OECD forecast last April is progressing as expected, with one or two positive surprises, but with deteriorating public deficits setting a worrying trend. This forecast update is based on a press briefing delivered by OECD chief economist Jean-Philippe Cotis on 3 September 2003 in Paris and is subject to revision since that date.  

The US recovery is, by and large, unfolding as projected in the OECD Economic Outlook published last April. In Japan, growth has surprised on the upside. In the euro area, the expected recovery has not yet materialised.

The recovery may gain momentum in the remainder of 2003, backed by policy stimulus, notably in the United States. The pattern of recovery seems likely to continue unevenly among the major OECD regions, however, with the euro area being the weak spot. Despite the projected pick-up in output, it will be some time before unemployment falls and output reaches its potential. Downward pressure on inflation should therefore continue for a while, but, further ahead, the risk of deflation now appears very remote. Assuming that oil prices do not increase and that exchange rates remain broadly unchanged, it is clear that the global recovery will continue to be largely driven by the United States, where large injections of monetary and fiscal stimulus are coming through. But Japan has also been supporting, rather than dragging down, global activity. Performance in the euro area has been disappointing so far in 2003.

According to the OECD’s forecasting models, this pattern of growth is likely to continue in the second half of 2003. This outlook is foreshadowed by recent business confidence indicators and purchasing manager surveys, and by highfrequency data on production, sales and housing. In the United States, most of these indicators are pointing up and surveys suggest buoyancy in both manufacturing and services. With consumer confidence improving since the Iraqi war, retail sales and durables orders indicate a strengthening of final demand. Furthermore, inventory rebuilding is likely, following a recent rundown in stocks.

In Japan, for which we have not yet developed an indicator model, there has been some recent improvement in business confidence, helped by a rebound in corporate profits, progress in corporate restructuring, better US and Asian growth prospects and reduced global uncertainty, while household confidence is also higher. By contrast, in the euro area, only the first signs of a bottoming out can be detected. Improvements in business confidence, if any, largely concern firms’ expectations of their own future production, while their assessment of the current business environment remains downbeat against the backdrop of shrinking order books and inventories judged to be too heavy. The economics department at the OECD has not been through a complete new forecasting round. However, putting the data for growth in the first half of 2003 together with our estimates of what third and fourth quarter GDP growth is likely to be, it would seem that US real GDP growth may approach 2.5% in 2003 as a whole. In contrast, figures imply annual euro area growth of only around 0.5%. For Japan, if growth in the second half of 2003 were to match that of the first, full-year growth would exceed 2%.

Near-term inflation prospects also diverge across the OECD area. In the United States, core inflation (which excludes food and energy) will continue to drift down, since even with growth picking up rapidly, it will take some time to eliminate the existing slack in the economy. Given the momentum of the recovery, it appears nonetheless that the risk of deflation has now become very remote. In Japan, core inflation has been negative for half a decade, but we project it to gradually move towards zero, helped by strengthening activity and more active monetary policy. With a widening output gap and rising unemployment, core inflation has now fallen significantly below 2%. But the process of disinflation may be slowing down. So far in 2003, headline inflation has continued to hover around the 2% European Central Bank threshold, reflecting in part the recent surge in energy and food prices. The relaxed monetary policy should be maintained across the OECD area until the recovery is firmly established.

In the United States, with core inflation still falling, the current expansionary stance of monetary policy can be maintained. Also, in Japan, unconventional monetary policy is starting to work and should be pursued vigorously until deflation is eliminated. But in the euro area, further monetary relaxation would be needed if clear signs of recovery failed to materialise in the near future. Meanwhile, a determined effort should be made to stem the current slide in public finances. Many large OECD economies now suffer from large and deteriorating public deficits in a context where medium-term strategies are either absent or under pressure. This worrying trend calls for vigorous corrective action as soon as the recovery achieves some momentum.

* The next edition of the OECD Economic Outlook, No. 74, will be issued in December, with a preliminary online edition in late November. For the previous Economic Outlook, No. 73, see or read “Unspectacular recovery” at, linked below.

©OECD Observer No 239, September 2003

Economic data


Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive print editions delivered to you directly

Online edition
Previous editions

Don't miss

  • Africa's cities at the forefront of progress: Africa is urbanising at a historically rapid pace coupled with an unprecedented demographic boom. By 2050, about 56% of Africans are expected to live in cities. This poses major policy challenges, but make no mistake: Africa’s cities and towns are engines of progress that, if harnessed correctly, can fuel the entire continent’s sustainable development.
  • “Nizip” refugee camp visit
    July 2016: OECD Secretary-General Angel Gurría visits the “Nizip” refugee camp, situated between Gaziantep and the Turkish-Syrian border, accompanied by Turkey’s Deputy Prime Minister Mehmet Şimşek. The camp accommodates a small number of the 2.75 million Syrians currently registered in Turkey, mostly outside the camps. In his tour of the camp, Mr Gurría visits a school, speaks with refugees and gives a short interview.
  • OECD Observer i-Sheet Series: OECD Observer i-Sheets are smart contents pages on major issues and events. Use them to find current or recent articles, video, books and working papers. To browse on paper and read on line, or simply download.
  • Queen Maxima of the Netherlands gives a speech next to Mexico's President Enrique Pena Nieto (not pictured) during the International Forum of Financial Inclusion at the National Palace in Mexico City, Mexico June 21, 2016.
  • How sustainable is the ocean as a source of economic development? The Ocean Economy in 2030 examines the risks and uncertainties surrounding the future development of ocean industries, the innovations required in science and technology to support their progress, their potential contribution to green growth and some of the implications for ocean management.
  • OECD Environment Director Simon Upton presented a talk at Imperial College London on 21 April 2016. With the world awash in surplus oil and prices languishing around US$40 per barrel, how can governments step up efforts to transform the world’s energy systems in line with the Paris Agreement?
  • Happy 10th birthday to Twitter. This 2008 OECD Observer interview with Henry Copeland said you’d do well.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Once migrants reach Europe, countries face integration challenge: OECD's Thomas Liebig speaks to NPR's Audie Cornish.

  • Message from the International Space Station to COP21

  • The carbon clock is ticking: OECD’s Gurría on CNBC

  • If we want to reach zero net emissions by the end of the century, we must align our policies for a low-carbon economy, put a price on carbon everywhere, spend less subsidising fossil fuels and invest more in clean energy. OECD at #COP21 – OECD statement for #COP21
  • They are green and local --It’s a new generation of entrepreneurs in Kenya with big dreams of sustainable energy and the drive to see their innovative technologies throughout Africa.
  • Pole to Paris Project
  • In order to face global warming, Asia needs at least $40 billion per year, derived from both the public and private sector. Read how to bridge the climate financing gap on the Asian Bank of Development's website.
  • How can cities fight climate change?
    Discover projects in Denmark, Canada, Australia, Japan and Mexico.
  • Climate: What's changed, what hasn't, what we can do about it.
    Lecture by OECD Secretary-General Angel Gurría, hosted by the London School of Economics and Aviva Investors in association with ClimateWise, London, UK, 3 July 2015.
  • Is technological progress slowing down? Is it speeding up? At the OECD, we believe the research from our Future of ‪Productivity‬ project helps to resolve this paradox.
  • Is inequality bad for growth? That redistribution boosts economies is not established by the evidence says FT economics editor Chris Giles. Read more on
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at .

Most Popular Articles


What issue are you most concerned about in 2016?

Euro crisis
International conflict
Global warming

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2016