OECD Economic Outlook 69 - Biblioteca Hegoa

EDITORIAL
Economic growth in the OECD area has been weakening since the autumn of
2000, but the forces damping growth are projected to dissipate during the current
half-year. Growth in the OECD area is now projected to drop more than had been
expected to 2 per cent in 2001, half the rate achieved last year, before recovering
somewhat next year to 2½ to 3 per cent. At the same time, the long-running reduction
in area-wide unemployment is projected to come to an end. Slower growth
across the OECD area should also, in combination with a fall in the assumed price of
oil, help to keep inflation low.
The projected recovery of growth is based on a number of factors. The interest
rate reductions that have taken place, some shifts toward fiscal ease and lower oil
prices should help to spur aggregate demand in the coming months. In addition, the
sustained pace of productivity growth in the United States, which was so remarkable
in the last half of the 1990s, suggests that these efficiency gains may have some measure
of durability, increasing the chances that such gains can be extended elsewhere.
Finally, inflation pressures show no sign of increasing in much of the region, leaving
monetary policy in most countries with scope to support activity further in the period
ahead, if needed.
The central projection is relatively optimistic, but the risks to the outlook are
clearly on the downside. A significant stock market correction, concentrated mainly on
technology stocks and not limited to the United States, has already taken place, bringing
equity prices closer to likely fundamental values. If, however, these prices were to
decline substantially further, either capitalising a more severe decline in expected earnings
than currently foreseen or simply overshooting on the downside, aggregate
demand would be hit harder. Such a development might in the first place seem more of
a risk in the United States, where the high-technology sector is more important and
stock prices matter more, but it could spill over to other regions through share price
declines or, more generally, through a deterioration of confidence.
A related risk is that the need for balance sheet adjustment in some countries
could lead to a more protracted and severe decline in global activity. In the United
States, rising household indebtedness and debt servicing obligations may prompt
consumer retrenchment. The Japanese economy is burdened with serious indebtedness
problems that take their roots from well before the current cyclical episode, as
the banking sector in Japan continues to carry an abundance of bad loans. More generally,
business investment could be weaker to the extent that the recent investment
boom has created excess capacity or that debt levels have become high.
If these risks were to materialise, the slowdown in the OECD region would naturally
be more severe, and monetary policy might have to become substantially more
accommodative than envisaged here. The precise requirements facing individual
central banks would depend also on the degree to which exchange rates changed.
Furthermore, to the extent that the risks emanate from the high technology sector and
from the United States, the added burden for Asian countries, both in and outside the
OECD area, would be relatively high, owing to their product specialisation and the
The outlook for growth has
weakened more than
expected…
… but a recovery is likely in the
coming months
However, the risks are skewed
to the downside...
… and, if they materialise,
could significantly magnify the
global slowdown
© OECD 2001