Momentum should pick up

Economic outlook: update*
Chief Economist, OECD

Though the global recovery has been marking time, the conditions are in place for the global recovery to pick up momentum.

The global recovery has been marking time, as the adverse effects of higher and more volatile oil prices worked their way through. This is in line with the numbers published in November 2004 in our Economic Outlook. The slight deceleration witnessed in the United States has also been consistent with the gradual return to a more neutral policy stance. In the euro area, exchange rate appreciation has been taking a toll, with some lag. In Japan, activity has contracted over the past three quarters, only partly reflecting slowing exports. Going forward, however, the conditions are in place for the global recovery to pick up momentum, including as concerns enterprise balance sheets and profits, which have strengthened markedly.

Domestic demand has held up well in the third year of the US recovery, with buoyant household consumption and business fixed investment. Despite dollar depreciation, imports have risen rapidly, but exports less so, exerting a drag on GDP and worsening an already wide current account gap. Employment creation, whilst cyclically sub-par, has gathered pace, and unemployment has shrunk further, although participation in the labour force has continued to decline. Confidence and other forward-looking indicators point to growth at around potential in the near-term.

Growth in the euro area at large has been far less impressive and unemployment has failed to retreat from comparatively high levels. Performance has also been somewhat dispiritingly uneven across countries. In some, the modest expansion in GDP was pulled mainly by external demand. Nevertheless, domestic demand which was still weak in the 4th quarter seems poised to gather strength, including where it has long languished. Business confidence slightly exceeds historical means and there are scattered signs of investment revival, notably in Germany. Consumer sentiment is creeping up towards long-term averages, despite the ambient labour market gloom. Against this backdrop, GDP growth can be expected to inch back up towards potential.

Statistical fog has traditionally obscured developments in Japan more than elsewhere. The new national accounts, resting on a sounder methodology, suggest that real GDP declined in each of the past three quarters, owing in equal measure to weakening export growth and faltering household consumption. Other indicators are more encouraging, however, and foreshadow a pick-up. Business investment has continued to expand and corporate profitability has improved. So have labour market conditions, with unemployment down to levels not seen since 1998, a high job-offers to applicants ratio and regular employment growth becoming less reliant on part-time jobs. Wage growth, however, remains in negative territory, casting some doubt on how rapidly household consumption may regain strength.

With some cyclical slack enduring in most large OECD economies, wage growth generally remains moderate and core inflation low or broadly on target. Against this background, and as productivity growth seems to revert to a more sustainable pace, the US Federal Reserve’s steady and well-anticipated march towards neutrality is gradually withdrawing the exceptionally ample stimulus injected earlier on. Greater cyclical slack in the euro area and persisting underlying deflation in Japan would warrant continued, if vigilant, patience before a return to a less accommodative posture is initiated.

Fiscal positions remain precarious in most OECD countries, both in headline terms and, more worryingly, when adjusting for the cycle and for various types of one-offs or omissions. Meanwhile, demography is starting to weigh on tax revenue and to boost public spending in some countries – most notably in Japan – or will shortly do so. The ongoing pension and health care system reforms, and more, are therefore needed to put public finances back on a sustainable course. More immediately, while in some countries cyclical conditions may call for incremental rather than abrupt fiscal adjustment, spreading it out too much could lead to an unexpectedly sharp back-up in long-term interest rates, with far more deleterious effects on activity.

*Press Briefing, by Jean-Philippe Cotis, OECD Chief Economist, 17 February, 2005

©OECD Observer February 2005  

Economic data

GDP growth: +0.6% Q3 2017 year-on-year
Consumer price inflation: 2.3% Dec 2017 annual
Trade: +4.3% exp, +4.3% imp, Q3 2017
Unemployment: 5.5% Dec 2017
Last update: 12 Feb 2018


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 paper editions delivered to you directly

Online edition
Previous editions

Don't miss

  • Ambassador Aleksander Surdej, Permanent Representative of Poland to the OECD, was a guest on France 24’s English-language show “The Debate”, where he discussed French President Emmanuel Macron’s speech at the World Economic Forum in Davos.
  • The fight against tax evasion is gaining further momentum as Barbados, Côte d’Ivoire, Jamaica, Malaysia, Panama and Tunisia signed the BEPS Multilateral Convention on 24 January, bringing the total number of signatories to 78. The Convention strengthens existing tax treaties and reduces opportunities for tax avoidance by multinational enterprises.
  • Rousseau
  • Do you trust your government? The OECD’s How's life 2017 report finds that only 38% of people in OECD countries trust their government. How can we improve our old "Social contract?" Read more.
  • Papers show “past coming back to haunt us”: OECD Secretary-General Angel Gurria tells Sky News that the so-called "Paradise Papers" show a past coming back to haunt us, but one which is now being dismantled. Please watch the video.
  • When someone asks me to describe an ideal girl, in my head, she is a person who is physically and mentally independent, brave to speak her mind, treated with respect just like she treats others, and inspiring to herself and others. But I know that the reality is still so much different. By Alda, 18, on International Day of the Girl. Read more.
  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Read some of the insightful remarks made at OECD Forum 2017, held on 6-7 June. OECD Forum kick-started events with a focus on inclusive growth, digitalisation, and trust, under the overall theme of Bridging Divides.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • 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.
  • 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 .
  • Visit the OECD Gender Data Portal. Selected indicators shedding light on gender inequalities in education, employment and entrepreneurship.

Most Popular Articles

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 2018