OECD Economic Outlook 69 - Biblioteca Hegoa

106 - OECD Economic Outlook 69
Monetary conditions and
export markets are less
supportive of growth
Growth and inflation should
slow from a peak in 2000
Luxembourg: Demand, output and prices
1997 1998 1999 2000 2001 2002
current prices
billion LF
Percentage changes, volume (1995 prices)
Private consumption 289.0 2.3 4.1 3.5 4.5 4.3
Government consumption 107.9 2.8 12.8 4.9 3.6 3.9
Gross fixed capital formation 125.8 1.5 26.6 0.5 5.7 5.4
Final domestic demand 522.8 2.2 11.4 3.0 4.6 4.5
a
Stockbuilding 1.8 0.1 0.1 0.1 0.0 0.0
Total domestic demand 524.6 2.3 11.5 3.0 4.6 4.5
Exports of goods and services 685.5 9.9 7.9 14.3 8.0 7.5
Imports of goods and services 585.6 8.3 11.2 10.5 7.6 7.1
a
Net exports 100.0 3.0 -1.9 5.9 1.9 1.8
GDP at market prices 624.6 5.0 7.5 8.5 5.6 5.5
GDP at market prices in billion euros 15.5
GDP deflator _ 1.5 2.3 4.1 3.4 2.4
Memorandum items
Private consumption deflator _ 1.7 1.4 3.1 2.3 1.8
Unemployment rate _ 3.1 2.9 2.6 2.5 2.5
b
General government financial balance _ 3.2 4.7 5.3 3.6 3.4
a) Contributions to changes in real GDP (percentage of real GDP in previous year), actual amount in the first column.
b) As a percentage of GDP.
Source: OECD.
greater frequency of automatic index-linked rises (the last two were less than one
year apart), which occur whenever cumulative price increases since the last threshold
was breached amount to 2½ per cent.
In contrast to developments in 1999-2000, a firmer euro and the anticipated
deterioration in export markets are likely to slow economic growth over the projection
period. Fiscal policy is set to ease quite substantially, though this is unlikely to
be as significant for activity as movements in the euro or in export markets. The government
has announced personal income tax cuts amounting to 1.2 per cent of GDP
in 2001 and 0.6 per cent of GDP in 2002. As a result, the budget surplus is projected
to decline to 3½ per cent of GDP in 2002 from 5¼ per cent in 2000. These projections
do not include the planned reduction in corporate income taxes in 2002
(amounting to about 1 per cent of GDP) as it has not yet been legislated.
Economic growth is projected to slow to 5½ per cent in 2001 and to remain at
this rate in the following year. Employment growth may thus slow to around 4 per
cent in 2002; but as most of the decline is likely to be absorbed by lower inflows of
cross-border workers and immigrants, there is unlikely to be much effect on the
unemployment rate, which should remain at around 2½ per cent. Consumer price
inflation is likely to fall quite sharply this year, mainly reflecting lower oil prices.
This will also reduce the frequency of automatic indexed wage increases, with the
next one, after that in April 2001, not likely to occur until the third quarter of 2002.
Declining cost and import price pressures should lower underlying inflation, especially
in 2002. The main risk to these projections is that export markets could be
weaker than expected. On the other hand, growth in the large financial sector, which
is only weakly related to the business cycle, may not decline in line with the rest of
the economy.