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Thursday, October 18, 2018

Recovery in key economies – OECD

The recently-presented 2003 OECD Economic Outlook shows that economic recovery has finally taken hold across the OECD. The strong momentum achieved in Asia, North America and the UK provides evidence of the renewed strength of the world economy. Despite domestic weaknesses, Continental Europe is also on its way to joining the recovery.

The turn for the better can be attributed to a variety of factors. The geopolitical environment has steadied, resulting in stable oil prices and a strengthening of confidence. The US economy has strengthened stimulated by monetary and fiscal policies and the OECD expects it to benefit from strong productivity gains and high potential growth. The US upswing has coincided with a marked and better-than-expected improvement in Japan. The Japanese recovery is driven largely by better investment prospects in the manufacturing sector and fast-growing markets in neighbouring Asian economies. The OECD expects sustained growth in the US and progressive recovery in Japan and Europe. The forecast is based on low inflationary pressures, a gradual reduction in unemployment underpinned by a prolonged period of monetary ease and moderate long-term interest rates.

The recovery scenario is not devoid of vulnerabilities. In Europe, balance-sheet problems are still evident in the business sector and will continue to inhibit investment. In a number of countries, households remain highly indebted and may suffer large income and wealth losses should interest rates increase abruptly. Such an increase in interest rates cannot be ruled out, in a context where all large OECD countries are now suffering from historically substantial public deficits, which will not disappear easily given their predominantly structural nature. Furthermore, the persistence of very large account imbalances at the early stage of economic recovery, especially in the U.S., contributes to complicating the outlook and may be a source of exchange rate instability. A sudden weakening of the US dollar could hamper recovery in the European economies.

A list of key indicators, including GPD growth in the key economies, can be viewed here.