OECD Economic Outlook 69 - Biblioteca Hegoa

the long-run tax cut will be introduced in fiscal year (FY) 2002 that starts in
October 2001. However, the projections assume that there will be an additional tax
cut of $60 billion in the short-run as in most recent proposals. At the same time, total
spending is projected to grow 4 per cent, with the introduction of some new programmes
only partly offset by restraint in a number of areas. As a result, the federal
surplus may drop back to under 2 per cent of GDP next year.
The economy is projected to grow by only 1¾ per cent in 2001 compared with
last year’s 5 per cent. Consumers may start to save once again. Companies are projected
to trim the level of investment in both inventories and equipment, and this
should suffice to reduce the growth of the capital stock substantially and so pave the
way for a recovery in business outlays in 2002. By then, households should also be
benefiting from the proposed tax cut. Overall, while growth is projected to pick up in
the second half of this year and recover to 3 per cent in 2002, the unemployment rate
may still rise to 5 per cent and the annual rate of inflation slacken to 1½ per cent, as
measured by the private consumption deflator. Given slower domestic demand
growth, import increases should moderate and the current-account deficit may ease
back slightly – but only to 4 per cent of GDP.
The main risks to the current economic situation stem from the steps that companies
and households may take to offset their continued need for increased borrowing
to finance the current rate of spending. In particular, if households were to feel
uncomfortable in increasing debt-service burdens further, at a time when the value of
their assets has declined, then consumer spending and housing investment could
stagnate for longer than envisaged. At the same time, if foreigners’ net appetite for
dollar investments were to shrink substantially faster than the current-account deficit,
a significant depreciation of the dollar and the resulting inflation pressures could
complicate the task of monetary policy.
Developments in individual OECD countries - 51
So, after a period of stagnation,
a modest recovery may occur…
… but it could be delayed if
households take drastic steps to
restore savings to more
desirable levels
© OECD 2001