World overview.
Hacche, Graham ; Fie, Tatiana ; Liadze, Iana 等
The global economic recovery remains both slow and uneven. Our
projection for world GDP growth in 2014 is 3.5 per cent, 0.1 percentage
point lower than our forecast three months ago, with markedly weaker
growth in the US partly offset by somewhat stronger expansions in
Germany and some emerging market economies; the global expansion is
expected to strengthen only slightly, to 3.7 per cent, next year.
The US economy unexpectedly contracted in the first quarter at the
steepest rate in five years, largely, it would seem, because of
unusually severe winter weather; a rebound has been in progress since
the early part of the year but in the first half as a whole growth was
weak. In Japan, by contrast, the first quarter saw the most rapid
expansion in almost three years as consumers and firms anticipated the
rise in the consumption tax on 1 April, but this has since been followed
by a reversal. Growth in the Euro Area has remained markedly weak
overall and uneven across the member countries, with growth strong in
Germany but weak in France and Italy.
[FIGURE 1 OMITTED]
Among the emerging market economies, China's growth has
stabilised close to the official target for 2014 of 'about 7.5 per
cent', thanks partly to new stimulus measures, while in India
business confidence has been boosted by the election of a new government
in May.
Price inflation globally has remained subdued and below targets in
most cases, although it has picked up quite sharply, closer to targets,
in recent months in the United States and Canada. In the Euro Area,
inflation has fallen further, to 0.5 per cent on a 12-month basis; it is
below 1 per cent in almost all member countries. Inflation expectations
implied by differentials between nominal and indexed financial
instruments have diverged significantly between the United States and
the Euro Area. Wage inflation globally remains quiescent, and primary
commodity prices, in US dollar terms, have fallen somewhat in the past
three months as food prices have weakened on indications of favourable
harvests.
In early June, the ECB announced measures, expected for several
months, to ease monetary conditions further and boost bank lending to
the private sector. These included the lowering of the rate on its
deposit facility and on excess bank reserves to -0.1 per cent--the first
time a major central bank has lowered a benchmark rate into negative
territory. The Bank indicated that although its rates had now, for all
practical purposes, reached their lower bound, it was 'unanimous in
its commitment to using unconventional instruments' (in particular,
bond-buying) if necessary. Given the Area's continuing lacklustre
economic performance, such action may indeed prove necessary. Official
interest rates were also lowered in the past three months in Hungary,
Mexico, Sweden, and Turkey, but raised in New Zealand and Russia. The US
Federal Reserve has continued tapering its 'QE3' asset
purchases as originally planned; the purchases are now expected to end
in October.
Financial markets have been notably buoyant. Government bond yields
have declined over the past three months in all major markets except the
UK, most markedly in the Euro Area. Equity prices in the same period
have reached new highs in the US and several other markets. In foreign
exchange markets, the euro has depreciated moderately against most other
major currencies. Recent months have been marked by low volatility in
most financial markets, and by limited market reactions to developments
that might have been expected to cause turbulence--such as the large
downward revisions to US GDP growth in the first quarter, the EU
parliamentary election results in May (where anti-EU parties were
successful in several countries), and geopolitical tensions. The
prospect of moves towards normalisation of monetary policy over the
coming year in some countries, especially the US and the UK, and of an
increasing divergence of financial conditions in these countries from
conditions in countries where economic activity and inflation have
remained weak, especially the Euro Area, are among the factors that
raise questions about how long this period of calm will continue.
The conflict in Iraq contributed to a limited and temporary upturn
in global energy prices in June. The conflict in Ukraine--the possible
economic consequences of which were discussed in the May Review (Box B)
has had significant effects on financial markets in Russia, but not in
other major markets.
Our forecast is subject to a number of risks, which are mainly on
the downside. One is the risk that inflation, which remains below target
in most advanced economies, will fall further. This risk remains
particularly acute for the Euro Area, where growth has remained weak,
especially since low growth and inflation increase the difficulty of
reducing fiscal burdens and improving the competitiveness of the deficit
countries within the Area.
Another risk relates to the current recession in China's real
estate market. Property investment in recent years has accounted for
about 13 per cent of China's GDP, which is unusually high by
international standards. Signs of oversupply have grown, and housing
prices have turned down in recent months. The real estate market is
closely linked to the financial sector, through lending for construction
and house purchase, and also through the use of property as collateral.
The shadow banking sector is particularly highly exposed. There are also
fiscal implications: taxes on land sales account for almost half of
local government revenues. Local government finances are also linked
directly to the shadow banking system through Local Government Financing
Vehicles (LGFV). Declining property prices and a slowdown in land and
property sales could impair borrowers' debt-servicing ability,
lenders' asset quality, and cash flow for LGFVs, which could
threaten the solvency of local government entities, calling for central
government support. According to China's national auditor, by the
end of 2013 the liabilities of local governments, including debt
guarantees, amounted to about one-third of GDP, large enough to be a
significant concern.
[FIGURE 2 OMITTED]
But some of the main risks to the forecast continue to relate to
the current, unusually accommodative, stance of monetary policies in the
advanced economies and the prospects for their normalisation. An issue
that has come increasingly to the fore in recent months is whether, and
to what extent, the timing and pace of normalisation should take account
of developments in asset markets and in private sector leverage. (1) Not
only have financial markets recently been particularly buoyant--some
have said 'euphoric'--but also real estate prices have risen
strongly in many cases. Thus a recent study by IMF staff (see
http://www.imf.org/external/research/housing/ index.htm) showed that--as
of end-2013--annual house price inflation had recently been 5 per cent
or higher in 14 out of 52 countries, including the United States,
Germany, and Switzerland among the advanced economies, and Brazil and
China among the emerging markets. In major cities, house price increases
have generally been well above national averages. Also, the ratio of
house prices to household incomes has recently been more than 10
percentage points above its long-term average in ten out of 24 OECD
countries.
These developments in asset markets are clearly linked to recent
accommodative monetary policies, which, by reducing to extraordinarily
low levels yields on liquid assets and the cost of credit, have boosted
the demand for riskier financial and real assets. The purpose of the
accommodative monetary policies has been to support demand in the real
economy and thus to promote the central banks' objectives for
inflation and also, in the case of the US Federal Reserve, its objective
of 'maximum employment'. But the transmission mechanisms by
which these objectives are achieved run largely through the inducement
for people and firms to search for higher yields, to borrow more, and to
take on more risk. A potential problem is that the associated buoyancy
of asset markets may itself pose risks for the financial system and the
economy. If asset prices are rising to higher and higher levels, and if
people and companies are taking on more and more cheap debt, the risk
must be increasing of a correction--perhaps when interest rates
eventually rise, or even before--that would be destabilising for the
financial system and the economy. Indeed, it could be destabilizing in
ways experienced all too painfully in the recent financial crisis that
led to the 'great recession' households finding themselves
with property whose value has declined far below the debt they incurred
to purchase it, and facing debt-service obligations they can no longer
afford at the increased level of interest rates; and financial
institutions threatened by insolvency through losses in asset values,
including borrower defaults.
A central bank may decide it should pre-empt this danger, and it
may do so either by using macroprudential instruments--for example, by
laying down new maximum loan-to-value ratios for house lending to
restrict the supply of credit, or by raising banks' capital
requirements to safeguard their solvency--or by using monetary policy.
In considering whether to pre-empt the danger by tightening monetary
policy, the central bank may be faced with one of its most difficult
dilemmas. There is inevitably uncertainty about whether a rise in asset
prices is in fact sustainable: it may, for example, have arisen from a
lasting change in portfolio preferences or rates of return. And the
effects of monetary tightening on asset prices and leverage are
uncertain: macro-prudential measures could be better targeted at the
problem, and a rise in interest rates could actually exacerbate debt
burdens by increasing debt-service costs and depressing incomes.
Moreover, to tighten monetary conditions in response to asset market
developments, when such action is not called for by inflation
developments or prospects, means that the central bank is being diverted
from the main task and objectives of its monetary policy. This may
jeopardise the credibility of its monetary policy and tend to increase
the volatility of inflation and unemployment.
But there are other considerations that may form a case for using
monetary policy. The effectiveness of macroprudential instruments may be
limited, not least because of the way they work through specified
institutions and may over time be circumvented by institutional and
financial innovation. Monetary action may also be viewed as necessary
because it could be seen as symmetrical to the central bank's
responsibility to provide liquidity and ease monetary conditions when
sharp declines in asset prices threaten disruption of the financial and
payment system: without such symmetry, there could be a danger of a
progressive, secular rise in inflation. Thus monetary tightening, even
when likely to cause macroeconomic outcomes to deviate from targets in
the short run, may be called for to minimise the risks of macroeconomic
and financial instability that may carry greater costs.
These considerations indicate that the appropriate response will
depend on the circumstances, including inflationary or deflationary
pressures in the real economy, the extent of exuberance in financial
markets, and the availability of macro-prudential instruments.
The dilemma facing a central bank when the economy is weak but
leverage or asset market developments suggest a need to tighten is
illustrated by the recent experience of Sweden. The Riksbank, after
lowering its benchmark interest rate from 4.25 to 0.25 per cent in
2008-10, raised the rate in several steps to 2 per cent in 2010-11
because of concerns about high household indebtedness and a possible
housing bubble, even though forecast inflation was below the 2 per cent
target and unemployment was high. During 2012, inflation fell sharply
below the target, to negative levels by the end of the year. Since
mid-2011, the Riksbank has had to focus increasingly on the credibility
of its inflation target, and it has lowered its benchmark rate in a
series of steps, reaching 0.25 per cent again in early July this year
(unusually, the Governor and his senior deputy were out-voted on the
latest reduction of 50 basis points). Inflation on a 12-month basis
reached a low of-0.6 per cent in March this year but has since risen,
reaching 0.2 per cent in June, still well short of the target.
Meanwhile, little progress has been made in reducing household debt
burdens, partly because reduced inflation has hindered the reduction of
real debt. In this case, the attempt to divert monetary policy towards
objectives related to private sector leverage and asset markets appears
not to have been a success.
More broadly, in the current conjuncture--with inflationary
pressures very limited in the advanced economies and deflationary risks
apparent in some cases; substantial economic slack indicated by stagnant
wages and high unemployment; and weak credit growth--we support the view
of the major central banks that asset market developments have not been
such as to call for an acceleration of the normalisation of monetary
policy. There may, however, be a need for macro-prudential policies to
be strengthened in some cases.
Prospects for individual economies
Euro Area
Economic growth has remained markedly weak overall and uneven among
member countries, unemployment has fallen only slightly further from its
2013 peak, and inflation has remained far below the ECB's target.
In early June, the ECB lowered its benchmark interest rates further and
took other measures to boost demand and bank lending to the private
sector. Sovereign yield spreads have widened somewhat in Portugal (where
questions arose in July about the solvency of a major commercial bank),
but have narrowed further elsewhere. In elections to the European
parliament in late May, parties hostile to the EU were successful in a
number of countries, but there was no significant impact on financial
markets.
The Area's GDP grew by only 0.2 per cent in the first quarter
of this year, slightly below the 0.3 per cent growth of the preceding
three months. After four quarters of positive growth, output in the
first quarter was only 0.9 per cent above its trough of early 2013.
Output contracted in the first quarter in Finland, Italy, the
Netherlands, and Portugal, and was flat in France. Growth was strongest
in Germany, at 0.8 per cent. More recent indicators, including
industrial production, PMIs, and gauges of business and consumer
sentiment, suggest little strengthening of growth. Unemployment has
declined somewhat, to 11.6 per cent in April and May, still close to the
plateau of 12.0 per cent that prevailed through most of last year.
[FIGURE 3 OMITTED]
Consumer price inflation in the twelve months to June was 0.5 per
cent--equal to the lowest rate since 2010--with the increase in the core
index at 0.8 per cent. The 12-month change in the broader index was
above 1 per cent only in Austria, Finland and Luxembourg; zero in Cyprus
and Spain; and negative in Greece and Portugal.
On 5 June, as foreshadowed in preceding weeks by its officials, the
ECB announced a number of measures to provide additional monetary
accommodation and to support bank lending to the private sector, and
thus to boost demand and raise inflation closer to the target of
'below, but close to, 2 per cent':
* The ECB lowered its key interest rates further: the rate on its
main refinancing operations (MROs) by 10 basis points (b.p.) to 0.15 per
cent; the rate on its marginal lending facility by 35 b.p. to 0.40 per
cent; and the rate on its deposit facility (and on excess reserves) by
10 b.p. to -0.10 per cent. The ECB thus became the first major central
bank to lower a benchmark interest rate into negative territory.
* Second, the ECB announced that it would be conducting a quarterly
series of 'targeted longer-term refinancing operations'
(TLTROs) between September 2014 and June 2016, to support bank lending
to the nonfinancial private sector, excluding loans to households for
house purchase. These operations would enable banks to borrow from the
ECB, at a favourable fixed interest rate (the rate on MROs at the time
of take-up, plus 10 b.p.), amounts initially up to 7 per cent of their
total loans to the qualifying sector (as of end-April 2014), and
subsequently, from March 2015 to June 2016, up to three times their net
lending to the qualifying sector in excess of a specified benchmark. All
the operations will mature in September 2018. Banks' initial
borrowing entitlement under the TLTROs will be about EUR 400 billion.
Bank borrowing under the operations will be subject to conditions
regarding lending to the qualifying sector, to be verified through new
reporting requirements.
* Third, the ECB decided to intensify preparations for outright
purchases of 'simple and transparent' asset-backed securities
(ABSs) with underlying assets consisting of claims against the
Area's non-financial private sector.
* Fourth, the ECB suspended its weekly operations designed to
sterilise the liquidity injected through the Securities Markets
Programme. This was initiated in 2010 to allow purchases of sovereign
bonds in secondary markets, but terminated in 2012 when the ECB
announced outright monetary transactions (OMTs).
* Fifth, the ECB reinforced its forward guidance on interest rates
and unconventional instruments. Observing that, apart from 'little
technical adjustments', the ECB's interest rates had now, for
all practical purposes, reached their lower bound, President Draghi
stated that 'key ECB interest rates will remain at present levels
for an extended period of time'. He noted that this guidance was
now reinforced by the fixed interest rate set for the TLTRO. He also
announced the extension to end-2016 of fixed-rate full allotments of
MROs and 3-month LTROs, which would have similar implications. With
regard to unconventional instruments, Draghi stated that 'if
required, we will act swiftly with further monetary policy easing',
and reiterated that 'the Governing Council is unanimous in its
commitment to using unconventional instruments within its mandate should
it become necessary to further address risks of too prolonged a period
of low inflation.' He indicated that this could include broad-based
asset purchases.
In early July, the ECB announced that in January 2015 meetings of
its Governing Council would move from a monthly to a six-weekly
schedule, and that it would also begin to publish accounts of its
monetary policy discussions.
With regard to the Area's new banking union, the ECB released
in mid-July an update of its plans for the balance sheet assessment it
is undertaking of 128 major banks: the banks will be given the results
of the stress tests in October, along with feedback on the asset quality
review. The banks will then be given 6-9 months to cover any capital
shortfalls. Also in mid-July, following the collapse of a major central
bank in the country, the Central Bank of Bulgaria, which is not a member
of the Euro Area, approached the ECB about joining the banking
union's single supervisory mechanism, which would make the ECB the
prime supervisor of its banks.
Progress towards objectives for fiscal consolidation has continued
in several countries. In late June, Ecofin decided to close the
Excessive Deficit Procedure for a further six members of the
EU--Austria, Belgium, the Netherlands, and Slovakia within the Euro
Area, and the Czech Republic and Denmark outside--bringing the number of
countries still in the 'corrective arm' of the Stability and
Growth Pact down to 11, from 24 three years ago.
Germany
The economic outlook remains quite strong with GDP growth rates for
this year and next expected to exceed potential. Low interest rates and
favourable financing conditions, as well as solid employment and wage
growth, will support domestic demand, while the external current account
surplus is projected to narrow only gradually. Over the medium term
economic growth is likely to decline somewhat owing to supply
constraints.
In the first quarter of 2014 the economy expanded by 0.8 per cent,
the fastest quarterly rate in almost three years. More recent indicators
suggest that the second quarter was not quite so buoyant, especially in
manufacturing, where growth was particularly strong in the early months
of the year. However, PMIs and retail sales data indicate that growth
momentum has been maintained in the services sector. Consumer confidence
has recently risen to a six-year high on one measure, but indicators of
business confidence have declined in recent months, partly owing to
concerns about political developments in Ukraine and the Middle East.
Strong growth has led to high capacity utilisation and employment; the
latter has both contributed to, and been enabled by, immigration.
Unemployment in recent months has stabilised at about 5.1 per cent,
after almost a decade of secular decline.
In 2014-15 the expansion is expected to be faster than potential
and driven domestically, rather than by net exports. We expect that in
2014 as a whole GDP growth will be 2 per cent and that it will weaken
only slightly next year, to 1.9 per cent. The conditions for domestic
demand are very supportive. Low interest rates, low price inflation and
the strong labour market underpin consumer spending. Unemployment seems
likely to fall further, putting upward pressure on wages, which are
expected to increase faster than envisaged earlier. In fact, in July,
Bundesbank officials indicated their support for larger wage gains. The
new national minimum wage, to be introduced in January next year, will
help reduce growing wage inequality but may raise unemployment in some
sectors.
[FIGURE 4 OMITTED]
An upward trend in orders, buoyant investment plans of enterprises,
and favourable financing conditions indicate business investment will
continue to strengthen. Housing investment remains vibrant. The demand
for housing is rising, on the back of growing employment and
exceptionally favourable funding conditions. The expansion of the supply
of housing in some urban centres is failing to meet demand, resulting in
rising property prices. Nationally, however, house price inflation
remains moderate.
With strong domestic demand growth fuelling imports and export
expansion limited by weak economic growth among Euro Area partners, the
large current account surplus is projected to narrow this year and next.
On the supply side, there is some uncertainty as to whether
continuing net immigration on the expected scale will be sufficient to
outweigh the demographic factors limiting the growth of the domestic
labour supply. There is little scope for increasing labour force
participation, especially as the option of drawing a full pension at 63
is expected to reduce participation among the over-60 age group.
The general government budget is expected to remain balanced over
the forecast horizon. The favourable GDP outlook suggests an
acceleration in revenue growth. Expenditure growth is also forecast to
rise, due to pensions increases, wage increases in the public sector, a
new childcare allowance and increased spending on transport
infrastructure, urban development and research and development
assistance.
France
Since our last forecast, France has undertaken an overhaul of its
Quarterly National Accounts, bringing them into line with the latest
European System of Accounts. (2) As a result, GDP is now 3.2 per cent
higher than previously estimated.
In growth terms, however, the economy has evolved broadly as
projected in May. Output was flat in the first quarter, with both final
domestic demand and net trade weighing down on growth: without a strong
positive contribution from stockbuilding the economy would have
contracted by 0.5 per cent. Household consumption shrank by 0.5 per
cent, despite an increase in real disposable incomes resulting partly
from a lower tax burden. As a result, the saving rate (as measured by
INSEE) reached a two-year high of 15.9 per cent--perhaps an indication
of economic uncertainty and low consumer confidence, which we assume
will continue weighing on consumer spending in the near term. With
industrial production still in decline in recent months, and PMIs and
business sentiment indices in May and June suggesting deteriorating
conditions, especially in manufacturing, we continue to expect that
stagnation will persist. Our forecast for growth in 2014 as a whole has
been revised down slightly to 0.5 per cent. Inflation has declined
further: the annual HICP inflation rate in June was 0.6 per cent, the
lowest since late 2009, notwithstanding the impact of January's VAT
increase.
Despite a rise in the number of subsidised jobs through the CICE
and Emploi d'avenir schemes, employment has continued to decline
and unemployment has remained high: at 10.1 per cent in May it was only
slightly below the 10.3 per cent peak that prevailed for most of 2013.
Given the weak prospects for growth, unemployment is not expected to
fall appreciably in the near term. An unintended consequence of the CICE
labour market subsidy is that it has boosted firms' profit margins;
given the current and prospective weakness of demand, it seems unlikely
that this will boost investment.
Weak growth and low inflation add to the difficulty of reducing the
ratios to GDP of the fiscal deficit and government debt. In June, the
government introduced a supplementary budget with additional spending
cuts intended to safeguard the 2014 deficit target of 3.8 per cent of
GDP. (This was the first stage of legislation to enact President
Hollande's 'responsibility pact' outlined in January and
designed to revitalise the economy.) Subsequently, however, the Cour des
Comptes (the national auditors) warned that the budget deficit this year
is likely to reach 4 per cent of GDP.
Italy
Economic recovery has yet to take hold. The return to growth--at a
mimimal, 0.1 per cent rate--in the final quarter of 2013, after nine
quarters of contraction, proved fleeting as GDP declined by 0.1 per cent
in the first quarter of 2014. This weaker than expected outturn was
driven mainly by a fall in fixed investment; personal consumption grew,
albeit slightly, for the first time since 2010. With the economy deeply
depressed and virtually stagnant, unemployment has been flat at about
12.6 per cent since late last year, and consumer price inflation has
declined further, to 0.2 per cent in the twelve months to June.
Recent indicators do not suggest any significant improvement in
performance in the second quarter of this year: industrial production in
May was 1.8 per cent lower than a year earlier, and PMIs for June
indicate weakening growth in manufacturing and contraction in the retail
sector. More positively, there have been marked improvements in business
and consumer confidence in recent months, following the appointment in
February of a new government headed by Prime Minister Renzi, and its
announcement in March of a programme of fiscal and labour market
reforms. As part of this programme, tax cuts were implemented on 1 May,
which should boost consumer spending. Other reforms should encourage
investment by improving the business environment, but these will take
time to implement and work through the economy. With credit conditions
remaining tight, especially for small firms, we therefore expect
business investment to remain relatively weak through 2014 and 2015.
Our forecast for 2014 as a whole is that GDP will be virtually
flat, while modest growth, of 1.3 per cent, is forecast for 2015.
After several years of difficult fiscal adjustment, Italy has
achieved one of the largest primary surpluses in the Euro Area.
Nevertheless, its ability to support demand via fiscal policy is
hampered by its need to stay within the 3 per cent limit for the ratio
of the overall deficit to GDP. Our central forecast is for this to be
2.8 per cent in 2014. This reflects the assumption that tax cuts are
being offset by reductions in government spending, which will weigh on
growth significantly over the next two years.
Spain
The economic recovery has continued to strengthen: GDP grew by 0.4
per cent in the first quarter, the fastest quarterly growth rate since
early 2008. We expect the expansion to be maintained at a moderate pace,
and our growth forecast for 2014 as a whole remains unchanged at 1.1 per
cent.
The first quarter also saw a shift in the pattern of demand growth.
Initially, in 2013, the recovery was characterised by strong export
growth coupled with relatively stable imports, resulting in a large
positive contribution from net trade. In the first quarter, this was
reversed, with exports contracting by 0.4 per cent, and imports bouncing
back by 1.5 per cent. GDP growth was thus driven by domestic demand,
with private consumption rising for the fourth consecutive quarter, the
contraction in private sector investment moderating significantly, and
public sector consumption expanding by 4.4 per cent. In our forecast,
continuing growth of domestic demand generates further expansion of
imports, closing the gap with export growth and leaving a neutral
contribution from net trade this year.
Employment grew more robustly in the first half of this year than
we forecast in May: the 1.1 per cent rise in the year to the second
quarter was the first four-quarter increase since 2008. Coupled with the
decline in the labour force, which is expected to persist throughout
2014, this lowered unemployment to 24.7 per cent in the second quarter.
Given these developments, we have revised down our unemployment forecast
for 2014 and 2015 to 24.6 and 23 respectively, which are still
exceptionally high by historical standards.
Consumer price inflation on a 12-month basis has declined further
in recent months, reaching zero in June. Inflation may become negative
in the third quarter, but in 2015 any deflationary pressure should abate
as wage growth picks up and spare capacity is absorbed.
In June, the government announced reductions in corporate and
personal income tax rates, the last main step in its plan to revive the
economy, following the earlier overhaul of the labour market and pension
system. While the tax cuts may bolster growth and investment, and will
no doubt be popular in the run-up to next year's elections, it is
not clear that they will expand the tax base sufficiently to offset the
revenues lost and meet the 2016 fiscal deficit target of 3 per cent of
GDP.
Other EU countries in Central and Eastern Europe
The economic recovery in Central and Eastern Europe is continuing
to strengthen, although, reflecting the legacy of the financial crisis,
growth remains moderate overall and uneven among countries. In the first
quarter of 2014, GDP in the region as a whole grew by 0.4 per cent. The
highest growth rates, close to 1 per cent in quarterly terms, were
recorded in Poland, Hungary and Bulgaria. Output declined in Romania,
Slovenia and Estonia.
We forecast that output in the region as a whole will grow by 2.1
per cent in 2014 as a whole, and 3.0 per cent in 2015. Growth will be
driven by domestic demand, fuelled by improving real incomes reflecting
strengthening labour market conditions. Inflation is expected to remain
low--at 0.8 per cent this year and 2.0 per cent in 2015. Risks of
deflation, as discussed in the May Review, continue to weigh on the
outlook, especially this year. Bulgaria is expected to record negative
inflation this year, and very low inflation rates are expected to
materialise in Poland, Hungary and Slovakia.
In Poland, the largest country in the region, economic activity has
gained momentum. Growth strengthened significantly in the second half of
last year, driven by strong export growth and recovering domestic
demand. GDP is expected to increase by 3.2 per cent in 2014, and 3.9 per
cent in 2015. Both private consumption and investment are projected to
increase, reflecting an improving situation in the labour market,
favourable credit conditions, and increased confidence; the contribution
to growth of net exports is forecast to decrease as the recovery
strengthens. In the labour market, the unemployment rate is projected to
decline slightly, which will support a pick-up in wage growth. The
personal saving rate is expected to increase as consumers seek to
rebuild their savings to pre-crisis levels, and also on account of
precautionary factors related to a recent transfer of private pension
savings to the public pension fund.
[ILLUSTRATION OMITTED]
[FIGURE 5 OMITTED]
In Hungary, GDP is projected to increase by 2.7 per cent per annum
this year and next. In both years, domestic demand is expected to be the
engine of growth, supported partly by the decline in short-term interest
rates over the past two years. In late July, the central bank cut its
benchmark rate to a historic low of 2.1 per cent, announcing that this
was the last step in lowering rates from the peak of 7.0 per cent
reached in 2012. The unemployment rate is forecast to decline somewhat
despite a continuing rise in the participation rate. Inflation is
projected to be a mere 0.5 per cent this year, but, as the effects of
cuts in regulated prices and declining inflation expectations gradually
diminish, the price level is projected to increase by about 2.7 per cent
in 2015.
In the Czech Republic, after a contraction of 0.9 per cent in GDP
last year, economic activity is projected to expand by about 2 per cent
both this year and next. Private consumption stagnated last year, but as
the situation in the labour market improves, and real wages and
employment rise, household spending will start contributing positively
to growth. At the same time, recent data for the growth of credit
suggest the possibility of a rebound in private investment. In the short
run net exports will contribute significantly to growth, but as the
domestic economic recovery strengthens, their relative role will weaken.
In the Baltic countries, with the exception of Estonia, economic
activity is expected to expand at a robust 3 per cent and more. The
Southern European economies, Bulgaria and Romania will record growth
below potential. The situation in Bulgaria is particularly fragile due
to the recent crisis in the banking sector.
United States
The economy unexpectedly contracted in the first quarter, but
severe weather seems to have been an important factor, and
higher-frequency indicators, including for the labour market, indicate
that growth has since rebounded. Nevertheless, growth in the first half
as a whole seems to have been weak, and for 2014 as a whole we now
project growth of 1.9 per cent, the same as the 2013 outturn. Consumer
price inflation recently has risen closer to the Federal Reserve's
objective of 2 per cent a year, but wage growth has remained subdued.
The Federal Reserve has continued reducing its 'QE3' asset
purchases in line with its original plan, and we still expect official
short-term interest rates to remain at their current, near-zero, levels
until the second quarter of next year. With continuing accommodative
monetary policy, diminished fiscal restraint, and reduced household debt
burdens, growth in the remainder of this year and in 2015 is still
expected to exceed potential.
GDP contracted in the first quarter, for the first time since early
2011, by 2.9 per cent at an annual rate--the sharpest drop in five
years. Each of the main expenditure components except consumer spending
declined in the quarter. The largest contributor to the fall in GDP was
a decline in inventories, but even final sales to domestic purchasers
grew by only 0.3 per cent at an annual rate. Unusually severe winter
weather appears to have been a major factor in the first quarter's
decline in activity, and more recent indicators point to a subsequent
resumption of growth, but with both consumer spending and the housing
market remaining sluggish. GDP growth in the first half as a whole
therefore seems likely to have been weak. Employment growth, however,
has strengthened: between February and June, non-farm payrolls increased
by more than 200,000 in five consecutive months for the first time since
2005-6. Unemployment declined to 6.1 per cent in June, its lowest level
since September 2008, from 6.7 per cent in December-March, with the
participation rate broadly unchanged at historically low levels--one of
the indications that the labour market remains weaker than headline
unemployment might suggest.
[FIGURE 6 OMITTED]
Consumer price inflation has picked up in recent months. The
12-month change in the CPI reached 2.1 per cent in June, up from a low
of 1.1 per cent in February, and the 12-month increase in the
corresponding core index rose over the same period to 1.9 per cent from
1.6 per cent. The Fed's preferred measure of inflation--the
increase in the price index for personal consumption expenditures has
risen more modestly and remains below 2 per cent: it was 1.8 per cent in
May, and 1.5 per cent in terms of the core index. Another important
indication that domestic inflationary pressures remain limited is that
wages have remained subdued: thus the 12-month change in the employment
cost index in March was 1.8 per cent.
In light of the continued progress towards its objectives of
maximum employment and 2 per cent annual inflation, the Federal Reserve
decided in mid-June to reduce further its 'QE3' asset
purchases in July to $35 billion a month. Also, the minutes of the June
meeting indicated that the Fed expects to end this programme with a $15
billion reduction in purchases in October. The Fed also indicated that
'it likely will be appropriate to maintain the current range for
the federal funds rate for a considerable time after the asset program
ends' provided actual and expected inflation remain well behaved.
[FIGURE 7 OMITTED]
There has been significant progress in reducing the fiscal deficit,
although longer-term challenges remain. We forecast that the general
government financial deficit will decrease from 6.4 per cent of GDP in
2013 to just above 5 per cent this year, a significant improvement from
the levels recorded just a couple of years ago. (3) Particularly given
recent indications of a decline in the potential growth rate of the US
economy and the historically low costs of government borrowing, there is
a strong case for an increase in public investment in infrastructure and
education, as well as growth-promoting reforms of the tax system and
immigration law. An increase in public investment designed to improve
productivity growth would be facilitated by a credible plan for medium-
and long-term fiscal consolidation. Such a short-term fiscal boost would
also raise demand and activity in the short term, and thus allow an
earlier withdrawal of monetary stimulus, which would be likely to be
advantageous in terms of financial stability. It is unfortunate that
such a combination of policies seems politically impossible.
[FIGURE 8 OMITTED]
Canada
As in the US, economic activity in Canada in the first quarter of
2014 was hit by unusually harsh winter weather, which caused disruptions
to production and transportation. Domestic demand fell by 0.1 per cent
in the quarter and GDP rose by only 0.3 per cent. More recent
indicators, including industrial production and retail sales, suggest
that activity rebounded in the second quarter, and we are assuming GDP
growth then of 0.9 per cent, which would largely make up for the
first-quarter shortfall. Unemployment in June rose to 7.1 from 6.9 per
cent, but has shown no clear trend over the past year.
For the remainder of 2014, growth is expected to be maintained
close to its average rate over the past year, with a rebalancing towards
exports and non-residential investment. An important contribution to the
former will be exports of crude oil to the US, supported by the broad
recovery in the US economy; last year's depreciation of the
Canadian dollar will also help net exports. By contrast, the growth of
housing investment is assumed to weaken as the adjustment process
continues on this front. Given these opposing forces, our GDP growth
forecast for this year is 2.3 per cent, practically unchanged from our
last forecast.
The Bank of Canada announced on July 16 that it would maintain its
overnight rate at 1 per cent, despite a recent spike in CPI
inflation--to 2.4 per cent in June--which the Bank attributed to
temporary factors, including higher energy prices and exchange rate
pass-through, rather than to any change in domestic fundamentals.
Indeed, core inflation has remained below 2 per cent. Monetary policy
thus remains highly accommodative and we expect it to remain so until
2015, by which time economic slack is expected to be significantly
reduced. Based on these considerations, we maintain our forecast for
average inflation in 2014 at 1.7 per cent.
In 2015, we expect the shift from investment in real estate to
spending on capital goods to gather pace, and this, along with the lift
provided by the external sector, will help to reduce the output gap. We
have thus raised our growth forecast to 2.7 per cent for 2015.
Consequence of this are likely to be a tighter labour market, rising
wages, and upward pressure on inflation. Hence, we have increased our
inflation forecast for 2015 slightly to 1.9 per cent, and expect the
central bank to raise its benchmark rate in the course of next year.
Japan
Recent economic data have been strongly affected by the increase in
the consumption tax on 1 April to 8 from 5 per cent. GDP in the first
quarter expanded (for the sixth consecutive quarter) by 6.7 per cent at
an annual rate, as consumers and firms brought forward purchases to
avoid the tax increase. Private consumption grew in the quarter by 9.2
per cent at an annual rate, and private non-residential investment by
34.0 per cent. A reversal in these domestic expenditures seems certain
in the second quarter, probably with a decline in GDP: thus retail sales
fell by 13.6 per cent in April, after a 4.6 per cent rise in March, and
recovered in May by only 4.6 per cent. Indeed, domestic demand may well
weaken further in the third quarter. But given the expansion already
seen in recent quarters, and with the support of highly accommodative
monetary policy and expansionary fiscal policy, we expect GDP growth of
1.4 per cent in 2014 as a whole. As the government begins the process of
fiscal consolidation next year, growth is projected to slow to 0.6 per
cent.
Consumer price inflation has also reflected the tax hike: in June,
the 12-month change in the core index (excluding fresh food) was 3.3 per
cent--well above the Bank of Japan's 2 per cent target for early
2015--but with the effects of the tax rise excluded, it is officially
estimated to have been 1.3 per cent. This adjusted increase is slightly
lower than 12-month inflation in the months immediately preceding the
tax rise. Questions therefore remain about the sustainability of the
rise in inflation towards the 2 per cent target as the effects of the
large depreciation of the yen in late 2012 and early 2013 dissipate.
Whether the progress is sustained and the target is met will depend
partly on developments in wages, which have thus far remained stagnant:
in May base wages were a modest 0.1 per cent higher than a year earlier.
Assuming some pickup in wage growth, our forecast is that inflation will
be around 2 per cent in 2014 as a whole, and slightly lower in 2015, at
1.9 per cent, but that in the medium term it will slow back to 1.25-1.5
per cent.
The possibility of continuing wage stagnation is a significant
downside risk to the forecast. If nominal wage growth fails to pick up
and falling real wages persist, there will be downward pressure on
household consumption, which could also stifle investment. The
consequent slowing of domestic demand could add downward pressure on
inflation, making it harder for the Bank of Japan to achieve its
inflation objective. However, recent labour market developments provide
some reasons to be optimistic: unemployment fell to 3.5 per cent in May,
its lowest point in sixteen years, with the ratio of vacancies to
applicants falling to as little as 1.1. If the apparent tightness in the
labour market is maintained, this seems likely to lead to increases in
wages which may help both to entrench inflation and to boost
households' purchasing power.
With regard to the 'third arrow' of
'Abenomics'--structural reforms to enhance growth--the
government announced in mid-June a 'Strategy for Reviving
Japan', comprising plans for a number of measures, including a
reduction in the corporation tax, new arrangements to support
connections between established firms and start-ups, and a review of the
system of agricultural cooperatives. Potentially more important are
reforms aimed at boosting the declining workforce. Japan's ageing
population is a major constraint on potential growth, and policies that
increase the active working population will not only help growth
prospects but also help relieve pressure on the fiscal position. Some
reforms relate to female participation in the workforce. Some steps have
already been taken by increasing the number of childcare places, helping
to increase female employment under the current government's tenure
by 0.5 million. New plans include increasing after-school care for
elementary school pupils and reforming, where necessary, tax
disincentives for women to work. A second area where policy can increase
the labour force is through immigration, and the government's
strategy includes plans for limited immigration of qualified workers in
the construction sector, nursing and manufacturing. Details of these
plans and their implementation, including the necessary legislation,
remain to be specified.
[FIGURE 9 OMITTED]
China
A combination of monetary and fiscal easing measures announced in
recent months has supported economic activity, helping GDP growth in the
year to the second quarter to pick up slightly, to 7.5 per cent,
matching the government's target for 2014 as a whole. However, the
short-term boost to growth does not change our view of the risks facing
the economy. The continuing reliance on debt and credit expansion to
generate economic growth, the complexity and size of the shadow banking
system, and the effects of the current weakening of growth in the real
estate sector leave as a major challenge the implementation of
structural reforms and the rebalancing of the economy. The recent
weakening of the housing sector--unusually large in China--may well
deepen further and have wide implications for the economy. Taking these
considerations into account, we have revised our forecast for GDP growth
only marginally for this year and next to 7.4 and 7.2 per cent
respectively.
Following the slowing of GDP growth to 7.4 per cent in the year to
the first quarter, and amid signs of further deceleration, the
government in April introduced a 'mini-stimulus' package of
spending and tax measures. Further indications of slowing growth led to
additional policy measures in recent months. In late May, local
governments were asked to speed up their investment spending. Then in
early June the government announced additional state-led infrastructure
spending, while the People's Bank, which had already been boosting
liquidity in the interbank market, announced that from 16 June it would
reduce reserve requirements for banks whose lending is predominantly to
small businesses and rural borrowers.
[FIGURE 10 OMITTED]
The government has thus been sufficiently concerned about slowing
growth to resort to 'mini' stimulus measures. One of the
sources of their concern may be the recession in the real estate market.
Property investment in recent years has accounted for 13 per cent of
GDP, which is unusually high by international standards. Signs of
oversupply have grown: housing construction and sales have been falling
(new construction starts in January-April were 22 per cent lower than a
year earlier), and housing prices have turned down (figure 10). The real
estate market is closely linked to the financial sector, through lending
for construction and house purchase, and also through the use of
property as collateral. The shadow banking sector is particularly highly
exposed. There are also fiscal implications: taxes on land sales account
for almost half of local government revenues.
Local government finances are also linked directly to the shadow
banking system. Local governments in China have a limited revenue base
and have been legally disallowed from borrowing, so they have resorted
to creating Local Government Financing Vehicles (LGFV) to raise funds,
predominantly from banks. (In late May, the finance ministry announced
that ten local governments would be allowed, in a pilot scheme, to issue
bonds--the first time that any local governments have been allowed to
borrow since 1994.) However, in recent years LGFVs have been borrowing
increasingly from the shadow banking system as banks have had to cut
back on loans. To raise more funds for development projects, local
governments have been increasing borrowing, boosting supply of new
properties and land held by the LGFV's. Proceeds from the sale of
land-lease rights constitute the main source for debt repayment for both
local governments and LGFV's. Maturity mismatch between short-term
borrowing and long-term investment has resulted in increasing reliance
on new borrowing to repay maturing debt. Declining property prices and
property sales could impair borrowers' debt-servicing ability and
lenders' asset quality. The consequent reduction of available
credit and increase in interest rates would further impair cash flow for
LGFVs. With insufficient finance, existing projects either would take
longer to complete or be left unfinished. Liabilities would not be
honoured and in the end, the LGFV and its local government would require
a bail-out or face insolvency. According to China's national
auditor, by end -2013 the liabilities of local governments, including
debt guarantees, amounted to about one-third of GDP, large enough to be
a significant concern for the central government.
India
After more than two years of sluggish economic expansion, at annual
rates below 5 per cent, indications are that growth is picking up
moderately this year. In the first quarter, GDP (on a market-prices
basis) was 6.1 per cent higher than a year earlier, and more recent,
higher-frequency, indicators also suggest a strengthening expansion. The
composite PMI for June was the highest for 16 months and industrial
production in May was 4.7 per cent higher than a year earlier--the
largest 12-month increase since 2012. There has been a rise in business
confidence--to a 14-month high in June, on one measure --related to the
election in May of a new government, which is widely perceived as more
business-friendly than its predecessor and expected to address such
obstacles to growth as bureaucratic red tape and infrastructure
bottlenecks. One indication of the increase in confidence is the rise in
India's stock market this year, larger than in any other major
market: in late July, equity prices were 17 per cent higher than in
early May and 29 per cent higher than in early February (the election
result having been widely anticipated). In foreign exchange markets, the
rupee has been broadly stable against the US dollar in recent months,
with the Reserve Bank reportedly intervening at times to absorb pressure
and accumulate reserves. In our May Review we were already forecasting
an upturn in growth in 2014-15, and this has been revised up only
slightly for 2014: we are now projecting growth of 5.5 per cent and 5.8
per cent, respectively, in the two years.
Consumer price inflation (the main measure monitored by the Reserve
Bank since April this year) has come down significantly to 7.3 per cent
in the year to June from a high of 11.2 per cent in the year ended last
November. But with the Reserve Bank considering the adoption of an
inflation target of 4 per cent, a reduction in the policy rate in the
near future seems unlikely.
The central government's budget deficit was reduced to 4.5 per
cent of GDP in the 2013/14 fiscal year. In July, the new government
announced its first budget, retaining the previous government's
deficit target of 4.1 per cent of GDP for the current fiscal year, and
setting targets of 3.6 and 3.0 per cent, respectively, for the next two
years. The finance minister announced an aim of raising annual economic
growth to 7-8 per cent within the next three years, together with plans
to facilitate foreign investment in certain sectors, overhaul public
spending and the subsidy regime, and simplify the tax system, including
through the introduction of a general sales tax. However, the budget was
short of specific reform plans, and much remains to be done to boost
India's medium-term growth prospects and address its fiscal
challenges.
Russia
In our May Review, we revised our GDP growth forecast for 2014 and
2015 down to -0.1 and 1.4 per cent, respectively, because of the
prospective repercussions of Russia's involvement in the conflict
in Ukraine, including the effects of increases in the cost of finance,
associated partly with increases in the Central Bank's policy rate
in March and April to 7.5 from 5.5 per cent, and international
sanctions. In the following weeks, political tensions eased somewhat and
pressures in Russian financial markets reversed. By early July, the
Moscow stock market had more than regained its February peaks, and
government bond yields had fallen back significantly. Net capital
outflows, which had totaled $48.8 billion in the first quarter, subsided
to $25.8 billion in the second. (Throughout the period since March, the
rouble's exchange rate in terms of the US dollar has been broadly
stable, partly due to official intervention.) On July 17, however,
pressures re-emerged after the shooting down in Ukraine of a Malaysian
Airways plane. This led to moves for additional sanctions, and the stock
market in the following week fell by about 6 per cent. On 25 July, the
Central Bank raised its benchmark interest rate by a further 50 basis
points, to 8 per cent, citing an increase in inflation risks, partly
owing to 'the aggravation of political tensions' and its
potential impact on the exchange rate. Russia's geo-political
situation thus remains a major factor to be considered in assessing
Russia's economic prospects.
Recent data for the real economy indicate stagnation and rising
inflation. In the first quarter, GDP fell by 0.3 per cent to a level
only 1.2 per cent higher than a year earlier. Industrial production in
June was only 0.4 per cent higher than a year earlier, and recent
composite PMIs have been close to five-year lows, indicating modest
growth at best. The growth of retail sales has weakened markedly in
recent months. Adding to the economy's difficulties, annual
consumer price inflation has risen sharply since February, to 7.8 per
cent in June, significantly above the Central Bank's informal
target of 5 per cent.
Taking all these factors into account, we maintain our May GDP
growth forecast. However, we have raised our forecast of average
inflation this year to 6.6 per cent, while lowering it to 5.1 per cent
for next year, when we expect the lagged effect of restrictive monetary
policy to materialise.
Brazil
Brazil's problems of weak economic growth and high inflation
have persisted and even worsened this year. In the first quarter, GDP
grew by only 0.2 per cent, with private consumption, investment, and
exports all declining: positive growth was due only to government
spending. More recent indicators show little sign of improvement:
industrial production has been in decline, and consumer confidence has
fallen to its lowest levels in five years. Given these developments and
increased uncertainty ahead of the October elections, we have revised
our growth forecast for this year down to 1.3 per cent. We have also
sharply lowered our growth forecast for 2015 to 1.5 per cent, reflecting
our expectation of both a tighter fiscal policy after the election and a
continuing hawkish stance by the Central Bank.
Tight monetary policy continues to be needed to contain inflation.
Consumer price inflation has risen this year, reaching 6.52 per cent in
June, slightly above the upper bound of the Central Bank's target
range. The Central Bank's benchmark Selic rate has been unchanged
at 11 per cent since April, after a series of hikes. The rise in
inflation this year seems mainly to reflect capacity
constraints--unemployment fell below 5 per cent in April--but may also
be attributed partly to a 6 per cent depreciation of the Real between
February and April. With real interest rates significantly positive,
further tightening action by the Central Bank seems unlikely in the near
term. Indeed, in late July the Central Bank lowered banks' reserve
requirements to ease credit conditions. Our forecasts of average
inflation in 2014 and 2015, at 6.3 and 6.0 per cent, respectively, are
somewhat higher than in our last Review.
[FIGURE 11 OMITTED]
Figure 11 illustrates the deterioration in Brazil's economic
performance after the great recession, compared with the pre-crisis
years. The country faces a difficult combination of low growth and high
inflation, in stark contrast with the situation in the pre-crisis years.
Figure 12 illustrates one positive development--that unemployment has
been reduced--but this seems unsustainable given the needs for
disinflation and structural adjustment.
[FIGURE 12 OMITTED]
Appendix A: Summary of key forecast assumptions by Iana Liadze
The forecasts for the world and the UK economy reported in this
Review are produced using the National Institute's model, NiGEM.
The NiGEM model has been in use at NIESR for forecasting and policy
analysis since 1987, and is also used by a group of about 40 model
subscribers, mainly in the policy community. Most countries in the OECD
are modelled separately, and there are also separate models of China,
India, Russia, Brazil, Hong Kong, Taiwan, Indonesia, Singapore, Vietnam,
South Africa, Turkey, Estonia, Latvia, Lithuania, Slovenia, Romania and
Bulgaria. The rest of the world is modelled through regional blocks so
that the model is global in scope. All models contain the determinants
of domestic demand, export and import volumes, prices, current accounts
and net assets. Output is tied down in the long run by factor inputs and
technical progress interacting through production functions, but is
driven by demand in the short to medium term. Economies are linked
through trade, competitiveness and financial markets and are fully
simultaneous. Further details on the NiGEM model are available on
http://nimodel.mesr. ac.uk/.
The key interest rate and exchange rate assumptions underlying our
current forecast are shown in tables A1-A2. Our short-term interest rate
assumptions are generally based on current financial market
expectations, as implied by the rates of return on treasury bills and
government bonds of different maturities. Long-term interest rate
assumptions are consistent with forward estimates of short-term interest
rates, allowing for a country-specific term premium in the Euro Area.
Policy rates in the major advanced economies are expected to remain at
extremely low levels at least until the beginning of 2015. The Reserve
Bank of Australia and the Mexican central bank reduced interest rates
through 2013 by 50 and 100 basis points respectively and while the
Reserve Bank of Australia has kept rates unchanged since, the Mexican
central bank cut them by a further 50 basis points in July 2014. After
introducing a 25 basis point interest rate cut last year, the Bank of
Korea has kept its policy interest rates unchanged. The central bank of
Sweden reduced its policy rate by 50 basis points in July, the first
reduction since December of last year. The central bank of Turkey has
continued lowering its policy rate, bringing it down by 175 basis points
in three rounds since April 2014. Since last autumn, both the central
banks of Hungary and Romania have lowered their interest rates. The
Romanian Central Bank lowered its interest rate by 75 basis points in
three steps and has kept rates unchanged since April. The central bank
of Hungary brought them down by 110 basis points in eight rounds. In
contrast, several emerging market economies have tightened monetary
policy in response to inflationary and financial market pressures, most
notably in Brazil, Indonesia, India, Russia and South Africa. After
raising interest rates in the first quarter of this year, India, and
Brazil have kept their interest rates unchanged, while in South Africa
and Russia interest rates were increased by a further 25 and 50 basis
points respectively. The central bank of New Zealand has increased its
policy rate by 75 basis points in four steps since the beginning of the
year. (1)
Policymakers in the US and UK are expected to begin to raise
interest rates in the first half of 2015, pre-empting rate rises in the
Euro Area by four quarters. This is broadly consistent with the interest
rate path for the US signalled by the Federal Open Market Committee
(FOMC). In March the FOMC replaced its quantitative threshold with
qualitative guidance, emphasising that it did not indicate a change in
policy intentions, but rather was adjusting guidance due to the
proximity of the unemployment rate to the 6Vi per cent threshold of its
original forward guidance policy. Instead of a single threshold (the 6V2
per cent unemployment rate), the FOMC will take into account a wide
range of data (consistent with its objectives of maximum employment and
an inflation rate of 2 per cent per annum) while determining the path of
the federal funds rate. But despite changes in its guidance the FOMC
expects the target range for the federal funds rate to remain unchanged
for a "considerable time after the asset purchase program
ends". (2)
At the meeting in December 2013, the FOMC announced a modest
reduction in the pace of its asset purchases, by $10 billion a month
starting in January 2014, on the back of the cumulative progress towards
full employment and improvements in the outlook for the labour market.
FOMC has consistently implemented this policy decision in each month
since January 2014. The Federal Reserve decided in mid-June that from
July 'tapering' would accelerate to $35 billion per month. The
minutes of the June meeting also indicated that the FOMC expects
tapering to conclude with a $15 billion reduction in purchases in
October 2014. In contrast, the ECB and the Bank of Japan are considering
reintroducing further rounds of balance sheet expansion. In early June,
the ECB announced measures, expected for several months, to ease
monetary conditions further and boost bank lending to the private
sector. These included the further lowering of its key interest rates:
the rate on its main refinancing operations by 10 basis points (b.p.) to
0.15 per cent; the rate on its marginal lending facility by 35 b.p. to
0.40 per cent; and the rate on its deposit facility (and on excess
reserves) by 10 b.p. to -0.10 per cent. The ECB thus became the first
major central bank to lower a benchmark interest rate into negative
territory. The Bank indicated that although its rates had now, for all
practical purposes, reached their lower bound, it was "unanimous in
its commitment to using unconventional instruments" (in particular,
bond-buying) if necessary.
Figure A1 illustrates the recent movement in, and our projections
for, 10-year government bond yields in the US, Euro Area, the UK and
Japan. Government bond yields in the US, Euro Area and the UK picked up
towards the end of December last year, but have drifted down since and
have stayed broadly unchanged recently. Convergence in Euro Area bond
yields towards those in the US, observed since the start of 2013,
reversed at the beginning of this year. Since February 2014, the margin
between Euro Area and US bond yields started to increase, reaching more
than 80 basis points (in absolute terms) in July. The expectations for
bond yields throughout 2014 are lower than expectations just three
months ago in the US, Euro Area and Japan and are marginally higher in
the UK. However, while the expectations for yields in the US and Japan
are marginally lower (ranging from about 1020 basis points),
expectations of yields in the Euro Area have fallen by more; by
approximately 40 basis points.
[FIGURE A1 OMITTED]
[FIGURE A2 OMITTED]
Sovereign risks in the Euro Area have been a major macroeconomic
issue for the global economy and financial markets over the past three
years. Figure A2 depicts the spread between the 10-year government bond
yields of Spain, Italy, Portugal, Ireland and Greece over Germany. The
final agreement on Private Sector Involvement in the Greek government
debt restructuring in February 2012 and the potential for Outright Money
Transactions (OMT) announced by the ECB in August 2012 brought some
relief to bond yields in these vulnerable economies. During summer 2013
there was some upward pressure on yields in Portugal, related to
uncertainty over its fiscal austerity programme, parts of which were
declared unconstitutional by the Portuguese Constitutional Court.
However, better than expected GDP figures for the second quarter of 2013
calmed the financial markets somewhat and bond spreads narrowed. In June
2014, as foreshadowed in preceding weeks by its officials, the ECB
announced a number of measures aimed at providing additional monetary
accommodation and supporting bank lending to the private sector, with
the ultimate aim of supporting aggregate demand and raising inflation
nearer to the target of "below, but close to, 2 per cent".
Sovereign yield spreads generally narrowed further in most Euro Area
countries, but have somewhat widened in Portugal (where questions arose
in July about the solvency of a major commercial bank) and Greece (on
the back of heightened risks perceptions).
In our forecast, we have assumed spreads over German bond yields
continue to narrow in all Euro Area countries. In the case of Portugal,
we have taken into account its exit from its international bail-out
programme in May 2014, which caused a modest jump in its funding costs
in the near term, as a result of the return to market sources for
funding. The implicit assumption underlying this is that the Euro Area
continues to hold together in its current form and further progress will
be made towards establishing a banking union.
Figure A3 reports the spread of corporate bond yields over
government bond yields in the US, UK and Euro Area. This acts as a proxy
for the margin between private sector and 'risk free'
borrowing costs. Private sector borrowing costs have risen more or less
in line with the observed rise in government bond yields since the
second half of 2013, illustrated by the stability of these spreads in
the US, Euro Area and the UK. Our forecast assumption is for corporate
spreads to remain at current levels until the end of 2014, and then
gradually converge towards their long-term equilibrium level from 2015.
Nominal exchange rates against the US dollar are generally assumed
to remain constant at the rate prevailing on 14 July 2014 until the end
of March 2015. After that, they follow a backward-looking
uncovered-interest parity condition, based on interest rate
differentials relative to the US. We have modified this assumption for
China, assuming that the exchange rate target continues to follow a
gradual appreciation against the US$, of about 2 Vi per cent annually
from end 2014 to 2016.
Our oil price assumptions for the short term are based on those of
the US Energy Information Administration, who use information from
forward markets as well as an evaluation of supply conditions, and are
reported in table 1 at the beginning of this chapter. Recent increases
in oil prices due to crises in Iraq as well as Ukraine were short lived.
We assume oil prices remain broadly unchanged during the course of the
year and decline modestly towards the end of 2014 by about $3 per
barrel. Over the medium term, oil price growth will be restrained in
part by the rise in new extraction methods for oil and gas, especially
in the US (see the discussion in February 2013 National Institute
Economic Review and Chojna et al, 2013). However, ongoing crises in Iraq
and Ukraine (and the associated international dispute), continue to pose
an upside risk to the price of oil in the short term.
[FIGURE A3 OMITTED]
Our equity price assumptions for the US reflect the expected return
on capital. Other equity markets are assumed to move in line with the US
market, but are adjusted for different exchange rate movements and
shifts in country-specific equity risk premia. Figure A5 illustrates the
key equity price assumptions underlying our current forecast. Global
share prices have performed well since the beginning of 2013,
irrespective of a short lived drop--a reaction to the QE tapering
signals emanating from the Federal Reserve last summer. Share prices in
some of the more vulnerable economies of the Euro Area, however, remain
depressed relative to their position in the first quarter of 2013 (e.g.
Hungary and the Czech Republic). After gaining in excess of 50 per cent
during 2013, share prices in Japan stalled at the turn of this year, and
have even lost about 2 per cent since the first quarter of 2014.
[FIGURE A4 OMITTED]
Fiscal policy assumptions for 2014-15 follow announced policies as
of 1 July 2014. Average personal sector tax rates and effective
corporate tax rate assumptions underlying the projections are reported
in table A3. Our forecast also incorporates planned/enacted changes in
VAT rates in 2013-14 for Canada, Finland, France, Italy and Japan.
Government spending is expected to decline as a share of GDP between
2014 and 2015 in most Euro Area countries reported in the table. We
expect the burden of government interest payments to rise this year as
compared to the past year in Ireland, Spain and Portugal and remain
unchanged in Italy. Recent policy announcements in Portugal, Spain,
Italy and elsewhere suggest that the commitment to fiscal austerity in
Europe may be waning. A policy loosening relative to our current
assumptions poses an upside risk to the short-term outlook in Europe.
For a discussion of fiscal multipliers and the impact of fiscal policy
on the macroeconomy based on NiGEM simulations, see Barrell, Holland and
Hurst (2013).
[FIGURE A5 OMITTED]
REFERENCES
Barrell, R., Holland, D. and Hurst, I. (2013),'Fiscal
multipliers and prospects for consolidation', OECD Journal Economic
Studies, 2012, pp. 71-102.
Chojna, J., Losoncz, M. and Suni, P. (2013), 'Shale energy
shapes global energy markets', National Institute Economic Review,
226, pp. F40-F45.
NOTES
(1) Interest rate assumptions are based on information available to
14 July 2014 and do not include a 50 basis point reduction by the
Central Bank of Turkey on 17 July 2014, 25 basis point increase by the
Central Bank of New Zealand on 24 July 2014, and 50 basis point increase
by the Central Bank of Russia on 25 July 2014.
(2) Federal Open Market Committee statement, the Federal Reserve,
19 March 2014.
Table A1. Interest rates
Per cent per annum
Central bank intervention rates
US Canada Japan Euro Area UK
2011 0.25 1.00 0.10 1.25 0.50
2012 0.25 1.00 0.10 0.88 0.50
2013 0.25 1.00 0.10 0.56 0.50
2014 0.25 1.00 0.10 0.20 0.50
2015 0.64 1.17 0.10 0.15 0.82
2016 1.70 1.88 0.17 0.46 1.32
2017-2021 3.29 3.27 0.77 1.79 2.64
2013 Q1 0.25 1.00 0.10 0.75 0.50
2013 Q2 0.25 1.00 0.10 0.60 0.50
2013 Q3 0.25 1.00 0.10 0.50 0.50
2013 Q4 0.25 1.00 0.10 0.37 0.50
2014 Q1 0.25 1.00 0.10 0.25 0.50
2014 Q2 0.25 1.00 0.10 0.23 0.50
2014 Q3 0.25 1.00 0.10 0.15 0.50
2014 Q4 0.25 1.00 0.10 0.15 0.50
2015 Q1 0.30 1.00 0.10 0.15 0.67
2015 Q2 0.52 1.00 0.10 0.15 0.75
2015 Q3 0.75 1.25 0.10 0.15 0.88
2015 Q4 0.98 1.43 0.10 0.15 1.00
2016 Q1 1.20 1.61 0.10 0.28 1.13
2016 Q2 1.54 1.79 0.15 0.40 1.25
2016 Q3 1.87 1.97 0.20 0.53 1.38
2016 Q4 2.20 2.15 0.25 0.65 1.50
10-year government bond yields
US Canada Japan Euro Area UK
2011 2.8 2.8 1.1 3.9 3.1
2012 1.8 1.9 0.8 3.2 1.8
2013 2.3 2.3 0.7 2.7 2.4
2014 2.7 2.4 0.6 2.1 2.8
2015 3.0 2.8 0.8 2.2 3.0
2016 3.5 3.3 1.0 2.6 3.3
2017-2021 4.0 3.9 1.7 3.4 3.9
2013 Q1 1.9 1.9 0.7 2.7 2.0
2013 Q2 2.0 2.0 0.7 2.5 1.9
2013 Q3 2.7 2.6 0.8 2.8 2.7
2013 Q4 2.7 2.6 0.6 2.7 2.8
2014 Q1 2.8 2.5 0.6 2.5 2.8
2014 Q2 2.6 2.4 0.6 2.1 2.7
2014 Q3 2.6 2.3 0.6 1.9 2.8
2014 Q4 2.7 2.4 0.6 2.0 2.9
2015 Q1 2.8 2.6 0.7 2.1 3.0
2015 Q2 3.0 2.7 0.8 2.2 3.0
2015 Q3 3.1 2.9 0.8 2.3 3.1
2015 Q4 3.2 3.0 0.9 2.4 3.2
2016 Q1 3.3 3.1 0.9 2.4 3.2
2016 Q2 3.4 3.2 1.0 2.5 3.3
2016 Q3 3.5 3.3 1.1 2.6 3.3
2016 Q4 3.6 3.4 1.1 2.7 3.4
Table A2. Nominal exchange rates
Percentage change in effective rate
US Canada Japan Euro Germany France Italy UK
Area
2011 -3.0 2.0 6.8 0.9 0.5 1.0 1.3 -0.2
2012 3.4 1.0 2.2 -1.9 -2.0 -2.0 -1.6 4.2
2013 2.9 -3.2 -16.7 2.9 2.9 3.1 3.8 -1.2
2014 2.2 -3.9 -2.6 2.2 2.2 2.4 3.6 8.4
2015 -0.2 1.0 0.0 -0.1 -0.2 -0.1 0.0 1.4
2016 0.3 -0.4 -0.1 0.6 0.5 0.6 0.8 -0.1
2013 Q1 1.2 -3.1 -12.0 1.2 1.3 1.2 1.3 -3.9
2013 Q2 1.4 -0.2 -5.6 0.1 0.2 0.1 0.1 0.3
2013 Q3 2.0 0.3 2.9 2.0 1.7 2.3 3.1 1.9
2013 Q4 -0.1 -3.0 -2.0 0.9 0.9 0.9 1.2 3.0
2014 Q1 1.7 -3.9 -1.5 0.8 0.9 0.7 1.2 2.6
2014 Q2 -0.7 1.8 0.2 0.0 -0.1 0.0 0.3 1.5
2014 Q3 -0.3 1.6 0.5 -0.5 -0.5 -0.4 -0.5 2.2
2014 Q4 0.0 -0.1 0.0 0.0 0.0 0.0 0.0 0.0
2015 Q1 -0.1 0.0 -0.1 0.0 0.0 0.0 0.0 0.0
2015 Q2 0.1 -0.1 -0.2 0.1 0.1 0.1 0.2 0.0
2015 Q3 0.1 -0.1 -0.1 0.1 0.1 0.1 0.2 0.0
2015 Q4 0.1 -0.1 -0.1 0.1 0.1 0.1 0.2 0.0
2016 Q1 0.1 -0.1 0.0 0.2 0.1 0.2 0.2 0.0
2016 Q2 0.1 -0.1 0.0 0.2 0.1 0.2 0.2 0.0
2016 Q3 0.0 -0.1 0.1 0.2 0.2 0.2 0.2 0.0
2016 Q4 0.0 0.0 0.1 0.2 0.2 0.2 0.3 0.0
Bilateral rate per US $
Canadian Yen Euro Sterling
$
2011 0.995 79.800 0.719 0.624
2012 0.997 79.800 0.778 0.631
2013 1.039 97.600 0.753 0.640
2014 1.087 101.900 0.732 0.592
2015 1.076 101.700 0.734 0.585
2016 1.080 102.000 0.728 0.585
2013 Q1 1.025 92.300 0.757 0.645
2013 Q2 1.032 98.800 0.765 0.651
2013 Q3 1.035 98.900 0.755 0.645
2013 Q4 1.064 100.400 0.735 0.618
2014 Q1 1.111 102.700 0.730 0.604
2014 Q2 1.090 102.100 0.729 0.594
2014 Q3 1.072 101.400 0.735 0.584
2014 Q4 1.073 101.400 0.735 0.584
2015 Q1 1.073 101.400 0.735 0.584
2015 Q2 1.075 101.600 0.735 0.585
2015 Q3 1.076 101.800 0.734 0.585
2015 Q4 1.078 102.000 0.733 0.585
2016 Q1 1.079 102.100 0.731 0.585
2016 Q2 1.080 102.100 0.730 0.585
2016 Q3 1.081 102.000 0.728 0.585
2016 Q4 1.081 101.900 0.725 0.584
Table A3. Government revenue assumptions
Average income Effective
tax rate corporate tax
(per cent) (a) rate (per cent)
2013 2014 2015 2013 2014 2015
Australia 14.2 14.2 14.2 25.7 25.7 25.7
Austria 32.2 32.2 32.1 21.8 21.8 21.8
Belgium 34.1 34.1 33.4 16.7 16.7 16.7
Canada 21.7 21.7 21.8 19.5 20.3 20.8
Denmark 38.2 38.4 38.1 32.8 32.8 32.8
Finland 32.5 32.9 32.9 22.9 23.1 23.1
France 30.5 30.6 30.6 32.7 32.7 32.7
Germany 28.2 28.3 28.2 19.4 19.4 19.4
Greece 17.6 18.3 20.8 13.5 13.5 13.5
Ireland 25.4 24.6 21.4 9.8 9.8 9.8
Italy 29.4 28.9 28.9 26.5 26.5 26.5
Japan 22.9 22.9 23.0 29.4 29.6 29.6
Netherlands 35.0 34.7 34.7 8.4 8.4 8.4
Portugal 22.4 24.5 24.5 20.1 18.1 18.1
Spain 24.3 24.3 24.1 15.8 15.8 15.8
Sweden 29.7 29.3 29.3 23.1 23.1 23.1
UK 23.1 23.2 23.6 16.3 14.6 13.3
US 18.6 18.7 19.1 28.6 28.8 29.1
Gov't revenue
(% of GDP)(b)
2013 2014 2015
Australia 32.3 32.2 31.5
Austria 40.8 40.3 39.0
Belgium 45.6 45.8 44.9
Canada 35.3 35.5 35.5
Denmark 48.7 48.7 48.4
Finland 46.8 47.3 47.2
France 45.9 46.0 46.0
Germany 42.2 41.1 40.9
Greece 31.0 34.4 37.1
Ireland 28.1 29.0 26.8
Italy 44.9 45.3 45.0
Japan 28.9 29.1 29.2
Netherlands 41.2 41.9 41.5
Portugal 38.7 38.9 38.4
Spain 37.1 37.0 36.8
Sweden 44.7 43.9 43.9
UK 38.3 37.1 37.8
US 29.5 30.1 30.6
Notes: (a) The average income tax rate is calculated as total income
tax plus both employee and employer social security contributions as
a share of personal income, (b) Revenue shares reflect NiGEM
aggregates, which may differ from official government figures.
Table A4. Government spending assumptions (a)
Gov't spending Gov't interest Deficit
excluding payments projected to
interest payments (% of GDP) fall below
(% of GDP) 3% of GDP (b)
2013 2014 2015 2013 2014 2015
Australia 32.1 31.7 31.1 1.6 1.5 1.4 2012
Austria 39.8 39.7 38.3 2.5 2.4 2.1 2011
Belgium 45.1 44.3 43.0 3.2 2.9 2.5 2013
Canada 35.1 34.5 34.3 3.3 3.2 3.1 2014
Denmark 47.9 48.1 47.5 1.7 1.5 1.4 2013
Finland 47.9 48.1 47.3 1.3 1.3 1.1 --
France 47.8 48.0 47.7 2.2 2.1 1.9 2017
Germany 39.7 38.5 38.3 2.5 2.3 2.0 2011
Greece 39.7 40.5 41.1 4.0 3.2 3.1 --
Ireland 30.9 29.0 27.7 4.2 4.4 4.1 2020
Italy 42.9 43.0 42.1 5.1 5.1 4.8 2014
Japan 39.4 38.5 37.7 2.0 1.8 1.6 --
Netherlands 41.9 42.5 42.2 1.6 1.5 1.4 2013
Portugal 39.4 38.6 36.0 4.3 4.4 4.4 2015
Spain 40.3 39.8 38.9 3.4 3.6 3.7 --
Sweden 45.4 45.5 45.0 0.9 0.8 0.8 --
UK 38.7 37.3 36.3 3.0 2.9 3.1 2016
US 32.2 31.8 31.0 3.7 3.6 3.5 2018
Notes: (a) Expenditure shares reflect NiGEM aggregates, which may
differ from official government figures, (b) The deficit in Sweden
and Finland has not exceeded 3 per cent of GDP in recent history. In
Japan, Greece and Spain the deficit is not expected to fall below 3
per cent of GDP within our forecast horizon.
Appendix B: Forecast detail
[FIGURE B1 OMITTED]
[FIGURE B2 OMITTED]
[FIGURE B3 OMITTED]
[FIGURE B4 OMITTED]
Table B1. Real GDP growth and inflation
Real GDP growth (per cent)
2011 2012 2013 2014 2015 2016-20
Australia 2.6 3.6 2.4 3.1 2.3 3.3
Austria (a) 2.9 0.7 0.4 1.2 2.3 2.8
Belgium (a) 1.8 -0.1 0.2 1.4 1.6 1.1
Bulgaria (a) 2.0 0.6 0.7 1.5 2.4 2.0
Brazil 2.7 1.0 2.5 1.3 1.5 3.6
China 9.4 7.7 7.6 7.4 7.2 6.6
Canada 2.5 1.7 2.0 2.3 2.7 2.8
Czech Republic 1.8 -0.9 -0.9 2.1 2.1 3.5
Denmark (a) 1.1 -0.4 0.4 1.6 2.0 1.9
Estonia (a) 9.6 3.9 0.8 1.5 3.1 3.2
Finland (a) 2.8 -1.0 -1.3 0.5 1.9 1.5
France (a) 2.1 0.4 0.4 0.5 1.9 2.2
Germany (a) 3.4 0.9 0.5 2.0 1.9 2.0
Greece (a) -7.1 -7.0 -3.9 -0.3 1.4 2.6
Hong Kong 4.8 1.5 2.9 3.3 3.5 3.2
Hungary (a) 1.6 -1.7 1.2 2.7 2.8 3.1
India 7.9 4.9 4.7 5.5 5.8 6.7
Indonesia 6.5 6.3 5.8 5.7 5.4 5.0
Ireland (a) 2.8 -0.3 0.2 3.3 1.4 2.4
Italy (a) 0.6 -2.4 -1.8 -0.1 1.3 2.8
Japan -0.4 1.4 1.5 1.4 0.6 0.8
Lithuania (a) 6.1 3.5 3.5 3.5 3.4 3.1
Latvia (a) 5.1 5.0 4.8 3.3 4.7 2.3
Mexico 4.0 4.0 1.1 2.4 3.0 3.2
Netherlands (a) 1.8 -1.6 -0.7 0.4 2.1 1.9
New Zealand 1.2 2.8 2.4 3.7 3.1 3.3
Norway 1.1 2.8 0.7 1.6 2.2 2.0
Poland (a) 4.5 2.1 1.5 3.2 3.9 3.6
Portugal (a) -1.3 -3.2 -1.4 0.4 2.0 2.5
Romania (a) 2.4 0.5 3.5 3.2 2.9 2.2
Russia 4.3 3.5 1.2 -0.1 1.4 4.4
Singapore 6.1 2.5 3.8 2.7 3.9 3.3
South Africa 3.6 2.5 1.9 1.7 3.0 3.4
S. Korea 3.7 2.3 3.0 3.5 3.5 4.4
Slovakia (a) 3.0 1.8 0.9 2.6 3.2 2.9
Slovenia (a) 1.0 -2.4 -0.9 0.2 1.8 2.2
Spain (a) 0.1 -1.6 -1.2 1.1 1.8 2.8
Sweden (a) 3.0 1.3 1.6 1.8 2.3 2.6
Switzerland 1.8 1.0 2.0 1.6 2.1 2.4
Taiwan 4.2 1.5 2.1 3.1 3.2 3.5
Turkey 8.8 2.1 4.0 2.8 3.2 5.4
UK (a) 1.1 0.3 1.7 3.0 2.3 2.4
US 1.8 2.8 1.9 1.9 3.0 2.9
Vietnam 6.2 5.2 5.4 5.5 5.4 4.4
Euro Area (a) 1.6 -0.6 -0.4 1.0 1.8 2.3
EU-2700 1.7 -0.3 0.1 1.5 2.0 2.4
OECD 2.0 1.5 1.3 1.9 2.4 2.7
World 3.9 3.2 2.9 3.5 3.7 3.9
Annual inflation (a) (per cent)
2011 2012 2013 2014 2015 2016-20
Australia 2.6 2.7 2.7 2.6 2.8 2.6
Austria (a) 3.6 2.6 2.1 1.7 2.0 1.9
Belgium (a) 3.4 2.6 1.2 0.9 1.3 2.3
Bulgaria (a) 3.4 2.4 0.4 -0.8 2.7 2.8
Brazil 6.6 5.4 6.2 6.3 6.0 6.1
China 5.4 2.7 2.6 2.3 2.9 2.9
Canada 2.1 1.4 1.2 1.7 1.9 1.7
Czech Republic 2.1 3.5 1.4 1.0 2.6 2.7
Denmark (a) 2.7 2.4 0.5 0.4 1.5 2.3
Estonia (a) 5.1 4.2 3.2 2.5 3.8 3.7
Finland (a) 3.3 3.2 2.2 1.6 2.1 2.7
France (a) 2.3 2.2 1.0 0.8 0.7 1.5
Germany (a) 2.5 2.1 1.6 1.0 1.4 2.1
Greece (a) 3.1 1.0 -0.9 -1.3 -0.4 1.1
Hong Kong 3.6 3.2 2.3 2.7 2.7 3.3
Hungary (a) 3.9 5.7 1.7 0.5 2.7 2.9
India 8.8 9.4 10.9 7.6 7.5 4.8
Indonesia 5.4 4.3 6.4 6.3 6.0 5.5
Ireland (a) 1.2 1.9 0.5 0.6 1.3 0.9
Italy (a) 2.9 3.3 1.3 0.5 1.3 2.0
Japan -0.8 -0.8 -0.2 2.1 1.6 1.2
Lithuania (a) 4.1 3.2 1.2 0.9 1.6 3.7
Latvia (a) 4.2 2.3 0.0 1.5 2.4 4.1
Mexico 3.4 4.1 3.8 3.9 3.6 3.4
Netherlands (a) 2.5 2.8 2.6 0.2 0.1 1.7
New Zealand 2.8 0.5 0.6 1.3 1.9 1.8
Norway 1.0 1.1 2.6 1.6 2.1 2.1
Poland (a) 3.9 3.7 0.8 0.3 1.3 1.9
Portugal (a) 3.6 2.8 0.4 -0.5 0.2 2.1
Romania (a) 5.8 3.4 3.2 2.9 3.1 1.6
Russia 8.4 5.1 6.8 6.6 5.1 5.6
Singapore 5.3 4.6 2.3 2.1 2.8 3.6
South Africa 4.9 5.7 5.2 5.8 6.3 3.4
S. Korea 4.0 2.2 1.3 1.7 2.0 2.6
Slovakia (a) 4.1 3.7 1.5 1.3 2.3 2.5
Slovenia (a) 2.1 2.8 1.9 1.2 1.6 3.2
Spain (a) 3.1 2.4 1.5 0.1 0.7 2.3
Sweden (a) 1.4 0.9 0.4 0.4 1.6 1.7
Switzerland 0.0 -1.1 -0.6 0.1 0.6 0.9
Taiwan 0.8 1.1 0.6 0.9 1.1 1.9
Turkey 6.5 8.9 7.5 8.6 6.6 6.4
UK (a) 4.5 2.8 2.6 1.6 1.8 2.0
US 2.4 1.8 1.1 1.6 2.2 2.5
Vietnam 18.7 9.1 6.6 4.9 6.1 6.4
Euro Area (a) 2.7 2.5 1.3 0.7 1.0 2.0
EU-2700 3.1 2.6 1.5 0.8 1.3 2.0
OECD 2.4 2.0 1.5 1.8 2.0 2.4
World 5.1 4.7 4.7 4.5 4.4 3.5
Notes: (a) Harmonised consumer price inflation in the EU economies
and inflation measured by the consumer expenditure deflator in the
rest of the world.
Table B2. Fiscal balance and government debt
Fiscal balance (per cent of GDP) (a)
2011 2012 2013 2014 2015 2020
Australia -3.6 -2.9 -1.4 -1.0 -1.0 -1.1
Austria -2.4 -2.6 -1.5 -1.8 -1.5 -2.0
Belgium -4.0 -4.1 -2.7 -1.5 -0.7 -2.1
Bulgaria -2.0 -0.8 -0.4 0.8 0.9 -0.6
Canada -3.7 -3.4 -3.0 -2.2 -1.8 -1.9
Czech Rep. -3.2 -4.2 -1.5 -1.0 -1.0 -2.4
Denmark -1.8 -4.1 -0.9 -0.9 -0.5 -1.2
Estonia 1.1 -0.2 1.1 0.1 0.1 -1.1
Finland -1.0 -2.2 -2.5 -2.0 -1.3 -1.0
France -5.3 -4.8 -4.2 -4.1 -3.6 -2.6
Germany -0.8 0.1 0.0 0.2 0.7 -1.2
Greece -9.6 -8.9 -12.7 -9.3 -7.2 -3.7
Hungary 4.2 -2.2 -2.4 -4.1 -3.1 -1.6
Ireland -13.0 -8.1 -7.0 -4.4 -5.1 -2.5
Italy -3.8 -3.0 -3.0 -2.8 -1.9 -0.6
Japan -8.8 -8.7 -12.0 -11.2 -10.1 -6.5
Lithuania -5.5 -3.2 -1.9 -1.5 -1.5 -1.5
Latvia -3.6 -1.3 -0.3 -1.7 -1.9 -1.3
Netherlands -4.0 -3.7 -2.3 -2.1 -2.1 -2.4
Poland -5.0 -3.9 -3.5 5.5 -1.7 -0.1
Portugal -4.3 -6.5 -5.0 -4.1 -2.0 0.1
Romania -5.6 -3.0 -0.6 -0.2 -0.7 -1.4
Slovakia -5.1 -4.5 -3.3 -2.1 -1.0 0.1
Slovenia -6.3 -3.8 -8.6 -5.1 -3.5 -0.6
Spain -8.7 -6.8 -6.6 -6.4 -5.9 -3.4
Sweden 0.2 -0.2 -1.7 -2.4 -1.9 -1.7
UK -7.6 -6.1 -5.8 -5.3 -3.8 1.3
US -10.7 -9.3 -6.4 -5.2 -3.8 -2.5
Government debt
(per cent of GDP, end year) (b)
2011 2012 2013 2014 2015 2020
Australia 26.5 31.8 32.5 31.7 30.9 26.5
Austria 73.0 74.5 74.6 74.2 71.7 63.8
Belgium 99.2 101.1 101.6 99.9 95.2 86.7
Bulgaria -- -- -- -- -- --
Canada 91.6 95.3 92.3 91.7 89.0 81.3
Czech Rep. 41.4 46.2 46.0 45.3 44.3 40.5
Denmark 46.4 45.4 44.5 45.1 44.3 40.7
Estonia -- -- -- -- -- --
Finland 49.4 53.7 57.0 57.8 56.7 48.3
France 86.2 90.6 93.4 96.3 97.7 92.9
Germany 80.0 81.0 78.4 74.9 70.6 53.1
Greece 170.3 157.2 175.1 184.2 188.5 173.8
Hungary 82.1 79.8 79.2 79.9 76.5 64.3
Ireland 104.1 117.4 123.7 124.2 125.2 121.9
Italy 120.7 127.0 132.6 134.5 132.6 102.7
Japan 202.5 213.5 220.9 222.2 222.0 234.7
Lithuania -- -- -- -- -- --
Latvia -- -- -- -- -- --
Netherlands 65.7 71.2 73.4 74.9 75.8 74.3
Poland 56.2 55.6 57.0 49.2 48.6 36.7
Portugal 108.2 124.1 129.0 133.7 133.3 104.9
Romania -- -- -- -- -- --
Slovakia -- -- -- -- -- --
Slovenia -- -- -- -- -- --
Spain 70.5 86.0 93.9 100.9 105.4 98.1
Sweden 38.7 38.3 40.5 41.8 42.4 42.2
UK 84.3 89.1 90.6 92.3 93.3 77.3
US 97.0 101.0 102.5 103.5 102.3 90.2
Notes: (a) General government financial balance; Maastricht
definition for EU countries, (b) Maastricht definition for EU
countries.
Table B3. Unemployment and current account balance
Standardised unemployment rate
2011 2012 2013 2014 2015 2016-20
Australia 5.1 5.2 5.7 5.8 5.7 5.1
Austria 4.2 4.4 4.9 4.7 4.1 4.7
Belgium 7.3 7.7 8.4 8.4 7.3 9.0
Bulgaria 11.3 12.3 12.9 11.9 10.2 10.1
Canada 7.4 7.3 7.1 6.8 6.8 6.8
China -- -- -- -- -- --
Czech Rep. 6.7 7.0 6.9 6.6 6.3 5.2
Denmark 7.6 7.5 7.0 6.5 6.2 5.7
Estonia 12.4 10.0 8.6 8.2 9.4 9.0
Finland 7.8 7.7 8.2 8.4 7.8 7.6
France 9.2 9.8 10.3 10.2 9.8 8.8
Germany 5.9 5.4 5.3 5.1 4.8 5.1
Greece 17.9 24.5 27.5 25.7 24.6 20.9
Hungary 10.9 10.9 10.2 8.5 9.1 8.7
Ireland 14.7 14.7 13.1 11.8 10.1 8.6
Italy 8.4 10.6 12.2 12.6 12.2 9.8
Japan 4.6 4.3 4.0 3.5 3.2 3.9
Lithuania 15.4 13.4 11.8 11.6 12.4 12.3
Latvia 16.3 14.9 11.9 11.5 10.8 11.4
Netherlands 4.4 5.3 6.7 7.0 5.9 3.7
Poland 9.7 10.1 10.3 9.5 8.6 7.0
Portugal 12.9 15.8 16.4 14.8 14.0 12.9
Romania 7.3 7.1 7.3 6.9 7.1 6.7
Slovakia 13.7 14.0 14.2 13.8 13.2 13.1
Slovenia 8.2 8.9 10.1 9.9 8.3 7.7
Spain 21.4 24.8 26.1 24.6 23.0 16.5
Sweden 7.8 8.0 8.0 8.2 8.2 7.4
UK 8.1 7.9 7.6 6.2 5.8 5.8
US 8.9 8.1 7.4 6.2 5.5 5.7
Current account balance (per cent of GDP)
2011 2012 2013 2014 2015 2016-20
Australia -2.8 -4.0 -2.8 -1.5 -2.1 -1.8
Austria 1.6 2.4 2.7 3.4 2.5 1.6
Belgium -1.1 -1.9 -1.6 -1.3 0.6 -0.2
Bulgaria 0.2 -0.9 2.3 -2.4 -0.2 -1.5
Canada -2.8 -3.4 -3.2 -2.5 -2.5 -0.8
China 2.1 2.6 2.1 2.3 2.3 1.8
Czech Rep. -2.7 -1.3 -1.4 -0.6 -3.3 -7.3
Denmark 5.9 6.0 7.3 7.3 8.8 7.7
Estonia 1.9 -1.9 -1.2 -4.2 0.2 0.3
Finland -0.6 -1.2 -1.0 -0.6 -1.5 -2.4
France -1.7 -2.1 -1.3 -1.3 -1.9 -2.0
Germany 6.8 7.5 7.6 6.5 6.1 5.2
Greece -9.9 -2.4 0.7 -0.3 0.1 -0.2
Hungary 0.4 0.8 3.0 1.6 2.9 2.2
Ireland 1.1 4.1 6.2 6.0 5.8 4.2
Italy -3.0 -0.3 1.0 0.8 1.5 4.2
Japan 2.1 1.1 0.7 -2.5 -1.7 0.9
Lithuania -1.5 -0.3 1.5 0.7 1.7 5.4
Latvia -2.4 -2.8 -0.9 2.6 -0.1 -0.6
Netherlands 8.5 8.9 9.7 10.3 9.9 8.9
Poland -4.3 1.4 -0.8 0.6 1.0 0.9
Portugal -7.0 -2.0 0.5 -1.0 0.1 1.5
Romania -6.4 -6.3 -1.5 -0.2 -3.4 -7.1
Slovakia -1.9 2.0 1.9 3.0 1.2 -1.6
Slovenia 0.4 3.3 6.3 4.2 3.8 3.4
Spain -3.7 -1.2 0.8 1.1 1.2 2.1
Sweden 6.1 6.0 6.2 3.5 1.8 0.4
UK -1.5 -3.8 -4.5 -2.8 -2.3 -2.2
US -3.0 -2.8 -2.4 -2.6 -2.5 -2.5
Table B4. United States
Percentage change
2010 2011 2012 2013
GDP 2.5 1.8 2.8 1.9
Consumption 2.0 2.5 2.2 2.0
Investment : housing -2.5 0.5 12.9 12.2
: business 2.5 7.6 7.3 2.7
Government : consumption 0.1 -2.7 -0.2 -2.0
: investment -0.1 -5.2 -3.9 -3.2
Stockbuilding (a) 1.4 -0.2 0.2 0.2
Total domestic demand 2.9 1.7 2.6 1.7
Export volumes 11.5 7.1 3.5 2.7
Import volumes 12.8 4.9 2.2 1.4
Average earnings 2.2 2.1 2.0 1.2
Private consumption deflator 1.7 2.4 1.8 1.1
RPDI 1.4 2.6 2.1 0.8
Unemployment, % 9.6 8.9 8.1 7.4
General Govt, balance as % of GDP -12.2 -10.7 -9.3 -6.4
General Govt, debt as % of GDP (b) 92.9 97.0 101.0 102.5
Current account as % of GDP -3.0 -3.0 -2.8 -2.4
Average
2014 2015 2016-20
GDP 1.9 3.0 2.9
Consumption 2.3 2.5 2.5
Investment : housing 4.1 9.5 7.6
: business 5.6 6.8 5.0
Government : consumption -0.4 0.3 1.6
: investment -0.6 0.0 1.5
Stockbuilding (a) -0.2 0.0 0.0
Total domestic demand 2.1 2.9 2.9
Export volumes 4.4 5.5 4.8
Import volumes 4.9 4.4 4.5
Average earnings 2.0 3.2 4.0
Private consumption deflator 1.6 2.2 2.5
RPDI 2.5 2.5 2.4
Unemployment, % 6.2 5.5 5.7
General Govt, balance as % of GDP -5.2 -3.8 -2.9
General Govt, debt as % of GDP (b) 103.5 102.3 94.9
Current account as % of GDP -2.6 -2.5 -2.5
Note: (a) Change as a percentage of GDR (b) End-of-year basis.
Table B5. Canada
Percentage change
2010 2011 2012 2013
GDP 3.4 2.5 1.7 2.0
Consumption 3.4 2.3 1.9 2.4
Investment : housing 8.7 1.6 6.1 -0.3
: business 14.2 10.9 6.1 1.1
Government : consumption 2.7 0.8 1.1 0.6
: investment 10.5 -7.0 0.5 -1.0
Stockbuilding (a) 0.3 0.5 0.0 0.3
Total domestic demand 5.2 2.8 2.3 1.9
Export volumes 6.9 4.7 1.5 2.2
Import volumes 13.6 5.7 3.1 1.1
Average earnings 1.4 3.6 2.3 1.8
Private consumption deflator 1.4 2.1 1.4 1.2
RPDI 2.2 2.2 2.4 2.2
Unemployment, % 8.0 7.4 7.3 7.1
General Govt balance as % of GDP -4.9 -3.7 -3.4 -3.0
General Govt, debt as % of GDP (b) 87.7 91.6 95.3 92.3
Current account as % of GDP -3.5 -2.8 -3.4 -3.2
Average
2014 2015 2016-20
GDP 2.3 2.7 2.8
Consumption 2.5 2.5 1.6
Investment : housing -2.1 -0.1 1.0
: business 0.3 5.2 3.4
Government : consumption 0.1 1.0 2.2
: investment -0.6 5.0 2.9
Stockbuilding (a) 0.3 0.0 0.0
Total domestic demand 1.5 2.4 1.9
Export volumes 2.8 4.1 5.1
Import volumes 0.1 3.0 2.3
Average earnings 2.1 2.1 2.7
Private consumption deflator 1.7 1.9 1.7
RPDI 1.9 1.5 1.4
Unemployment, % 6.8 6.8 6.8
General Govt balance as % of GDP -2.2 -1.8 -1.8
General Govt, debt as % of GDP (b) 91.7 89.0 83.9
Current account as % of GDP -2.5 -2.5 -0.8
Note: (a) Change as a percentage of GDP. (b) End-of-year basis.
Table B6. Japan
Percentage change
2010 2011 2012 2013
GDP 4.7 -0.4 1.4 1.5
Consumption 2.8 0.3 2.1 2.0
Investment : housing -4.8 5.1 2.9 8.8
: business 0.7 4.1 3.6 -1.4
Government : consumption 1.9 1.2 1.7 2.0
: investment 0.1 -7.7 2.2 11.5
Stockbuilding (a) 0.9 -0.2 0.1 -0.3
Total domestic demand 2.9 0.5 2.3 1.8
Export volumes 24.5 -0.4 -0.1 1.6
Import volumes 11.1 5.9 5.4 3.4
Average earnings -1.4 0.9 -0.6 1.1
Private consumption deflator -1.7 -0.8 -0.8 -0.2
RPDI 2.3 0.7 0.7 2.4
Unemployment, % 5.1 4.6 4.3 4.0
Govt, balance as % of GDP -8.3 -8.8 -8.7 -12.0
Govt, debt as % of GDP (b) 193.0 202.5 213.5 220.9
Current account as % of GDP 3.9 2.1 1.1 0.7
Average
2014 2015 2016-20
GDP 1.4 0.6 0.8
Consumption 1.3 -0.3 -0.4
Investment : housing 8.9 2.4 2.2
: business 4.5 1.3 5.4
Government : consumption 1.5 0.6 0.6
: investment 3.8 -0.1 1.0
Stockbuilding (a) -0.1 0.7 0.0
Total domestic demand 2.0 0.9 0.8
Export volumes 8.8 3.9 4.3
Import volumes 11.6 5.7 4.8
Average earnings 1.6 1.5 2.0
Private consumption deflator 2.1 1.6 1.2
RPDI -0.7 0.4 -0.7
Unemployment, % 3.5 3.2 3.9
Govt, balance as % of GDP -11.2 -10.1 -7.7
Govt, debt as % of GDP (b) 222.2 222.0 230.7
Current account as % of GDP -2.5 -1.7 0.9
Note: (a) Change as a percentage of GDP. (b) End-of-year basis.
Table B7. Euro Area
Percentage change
2010 2011 2012 2013
GDP 1.9 1.6 -0.6 -0.4
Consumption 1.0 0.3 -1.4 -0.6
Private investment 0.4 2.2 -3.2 -2.3
Government : consumption 0.6 -0.1 -0.6 0.2
: investment -4.1 -2.6 -3.9 0.7
Stockbuilding (a) 0.7 0.2 -0.4 -0.1
Total domestic demand 1.3 0.6 -2.0 -0.7
Export volumes 11.4 6.7 2.7 1.5
Import volumes 9.8 4.7 -0.8 0.4
Average earnings 1.0 1.6 1.9 1.4
Harmonised consumer prices 1.6 2.7 2.5 1.3
RPDI -0.5 -0.4 -1.4 -0.8
Unemployment, % 10.1 10.1 11.3 12.0
Govt, balance as % of GDP -6.2 -4.2 -3.7 -3.0
Govt, debt as % of GDP (b) 85.6 87.5 90.8 92.7
Current account as % of GDP 0.1 0.1 1.4 2.4
Average
2014 2015 2016-20
GDP 1.0 1.8 2.3
Consumption 0.9 1.4 1.4
Private investment 1.7 2.9 5.0
Government : consumption 0.6 0.3 1.5
: investment 2.1 -0.7 1.5
Stockbuilding (a) 0.2 0.1 0.0
Total domestic demand 1.2 1.4 2.1
Export volumes 3.1 5.5 4.4
Import volumes 3.7 5.0 4.3
Average earnings 1.0 2.0 3.1
Harmonised consumer prices 0.7 1.0 2.0
RPDI 1.1 1.3 1.9
Unemployment, % 11.6 10.9 9.3
Govt, balance as % of GDP -2.6 -2.0 -1.7
Govt, debt as % of GDP (b) 94.1 92.3 84.2
Current account as % of GDP 2.4 2.6 2.7
Note: (a) Change as a percentage of GDP. (b) End-of-year basis;
Maastricht definition.
Table B8. Germany
Percentage change
2010 2011 2012 2013
GDP 3.9 3.4 0.9 0.5
Consumption 1.0 2.3 0.7 1.0
Investment : housing 4.1 9.2 1.9 0.6
: business 6.7 6.8 -2.1 -1.7
Government : consumption 1.3 1.0 1.0 0.4
: investment -0.9 2.6 -7.1 2.5
Stockbuilding (a) 0.6 0.0 -0.6 0.2
Total domestic demand 2.3 2.9 -0.3 0.8
Export volumes 14.8 8.1 3.8 1.1
Import volumes 12.3 7.5 1.8 1.6
Average earnings 0.9 2.7 3.4 2.3
Harmonised consumer prices 1.2 2.5 2.1 1.6
RPDI 1.0 1.8 0.7 0.5
Unemployment, % 7.1 5.9 5.4 5.3
Govt, balance as % of GDP -4.2 -0.8 0.1 0.0
Govt, debt as % of GDP (b) 82.5 80.0 81.0 78.4
Current account as % of GDP 6.2 6.8 7.5 7.6
Average
2014 2015 2016-20
GDP 2.0 1.9 2.0
Consumption 1.6 2.0 1.8
Investment : housing 6.0 3.8 5.6
: business 4.5 3.0 1.9
Government : consumption 1.1 1.7 1.5
: investment 7.3 -6.0 0.7
Stockbuilding (a) 0.6 0.0 0.1
Total domestic demand 2.8 2.1 2.0
Export volumes 3.2 5.5 4.6
Import volumes 5.0 6.3 5.0
Average earnings 1.6 3.0 3.7
Harmonised consumer prices 1.0 1.4 2.1
RPDI 1.8 1.6 2.0
Unemployment, % 5.1 4.8 5.1
Govt, balance as % of GDP 0.2 0.7 -0.4
Govt, debt as % of GDP (b) 74.9 70.6 59.7
Current account as % of GDP 6.5 6.1 5.2
Note: (a) Change as a percentage of GDP. (b) End-of-year basis;
Maastricht definition.
Table B9. France
Percentage change
2010 2011 2012 2013
GDP 1.9 2.1 0.4 0.4
Consumption 1.7 0.3 -0.5 0.3
Investment : housing 1.5 1.0 -2.2 -3.1
: business 3.1 4.7 1.0 -0.5
Government : consumption 1.2 1.0 1.7 2.0
: investment -1.0 -4.4 1.6 1.1
Stockbuilding (a) 0.5 0.9 -0.5 -0.2
Total domestic demand 2.1 1.8 -0.2 0.2
Export volumes 8.6 7.1 1.2 2.4
Import volumes 8.5 6.6 -1.2 1.9
Average earnings 1.8 2.5 2.3 1.2
Harmonised consumer prices 1.7 2.3 2.2 1.0
RPDI 0.8 0.5 0.5 0.6
Unemployment % 9.3 9.2 9.8 10.3
Govt, balance as % of GDP -7.1 -5.3 -4.8 -4.2
Govt, debt as % of GDP (b) 82.8 86.2 90.6 93.4
Current account as % of GDP -1.3 -1.7 -2.1 -1.3
Average
2014 2015 2016-20
GDP 0.5 1.9 2.2
Consumption 0.1 1.5 1.4
Investment : housing -7.6 -1.0 5.9
: business 1.2 5.2 2.8
Government : consumption 1.5 0.7 1.5
: investment 1.6 -0.1 1.4
Stockbuilding (a) 0.0 0.0 0.0
Total domestic demand 0.2 1.6 1.8
Export volumes 2.9 5.5 4.7
Import volumes 3.2 4.2 3.2
Average earnings 2.5 2.9 3.3
Harmonised consumer prices 0.8 0.7 1.5
RPDI 1.3 2.0 1.8
Unemployment % 10.2 9.8 8.8
Govt, balance as % of GDP -4.1 -3.6 -2.8
Govt, debt as % of GDP (b) 96.3 97.7 95.1
Current account as % of GDP -1.3 -1.9 -2.0
Note: (a) Change as a percentage of GDP. (b) End-of-year basis;
Maastricht definition.
Table B10. Italy
Percentage change
2010 2011 2012 2013
GDP 1.7 0.6 -2.4 -1.8
Consumption 1.5 -0.3 -4.0 -2.6
Investment : housing -0.4 -6.1 -6.7 -5.9
: business 5.9 1.5 -7.9 -5.1
Government consumption -0.4 -1.3 -2.6 -0.8
: investment -16.3 -4.5 -12.3 1.2
Stockbuilding (a) 1.2 0.0 -0.4 -0.2
Total domestic demand 2.2 -0.8 -4.9 -2.8
Export volumes 11.2 6.9 2.0 0.0
Import volumes 12.3 1.4 -7.1 -2.9
Average earnings 2.2 1.1 1.2 1.4
Harmonised consumer prices 1.6 2.9 3.3 1.3
RPDI -0.8 -0.8 -4.7 -1.3
Unemployment, % 8.4 8.4 10.6 12.2
Govt, balance as % of GDP -4.5 -3.8 -3.0 -3.0
Govt, debt as % of GDP (b) 119.4 120.7 127.0 132.6
Current account as % of GDP -3.4 -3.0 -0.3 1.0
Average
2014 2015 2016-20
GDP -0.1 1.3 2.8
Consumption 0.3 1.2 1.7
Investment : housing -3.0 -2.4 8.8
: business -1.8 -0.6 7.6
Government consumption 0.0 -0.7 0.9
: investment 1.3 -0.2 1.2
Stockbuilding (a) -0.2 0.4 0.0
Total domestic demand -0.4 0.8 2.6
Export volumes 2.5 4.4 4.5
Import volumes 2.0 3.2 4.1
Average earnings 0.9 0.0 1.1
Harmonised consumer prices 0.5 1.3 2.0
RPDI 0.9 0.2 2.3
Unemployment, % 12.6 12.2 9.8
Govt, balance as % of GDP -2.8 -1.9 -0.6
Govt, debt as % of GDP (b) 134.5 132.6 114.5
Current account as % of GDP 0.8 1.5 4.2
Note: (a) Change as a percentage of GDP (b) End-of-year basis;
Maastricht definition.
Table B11. Spain
Percentage change
2010 2011 2012 2013
GDP -0.2 0.1 -1.6 -1.2
Consumption 0.2 -1.2 -2.8 -2.1
Investment : housing -11.4 -12.5 -8.7 -8.0
: business 0.5 1.1 -8.0 -3.6
Government consumption 1.5 -0.5 -4.8 -2.3
: investment 0.0 0.0 -0.2 -1.4
Stockbuilding (a) 0.3 -0.1 0.0 0.0
Total domestic demand -0.6 -2.1 -4.1 -2.8
Export volumes 11.7 7.6 2.1 4.9
Import volumes 9.3 -0.1 -5.7 0.4
Average earnings 0.0 0.3 -0.4 0.4
Harmonised consumer prices 2.0 3.1 2.4 1.5
RPDI -4.8 -2.9 -4.5 -3.6
Unemployment, % 19.9 21.4 24.8 26.1
Govt, balance as % of GDP -9.4 -8.7 -6.8 -6.6
Govt, debt as % of GDP (b) 61.7 70.5 86.0 93.9
Current account as % of GDP -4.5 -3.7 -1.2 0.8
Average
2014 2015 2016-20
GDP 1.1 1.8 2.8
Consumption 1.9 1.1 1.1
Investment : housing -5.9 -5.3 6.3
: business 7.8 8.7 10.4
Government consumption -1.2 -2.3 3.2
: investment -1.0 0.8 3.2
Stockbuilding (a) 0.0 0.0 0.0
Total domestic demand 1.0 0.6 3.0
Export volumes 4.4 6.1 3.7
Import volumes 4.4 2.6 4.6
Average earnings -1.3 1.0 3.4
Harmonised consumer prices 0.1 0.7 2.3
RPDI -0.3 1.0 1.7
Unemployment, % 24.6 23.0 16.5
Govt, balance as % of GDP -6.4 -5.9 -4.3
Govt, debt as % of GDP (b) 100.9 105.4 102.2
Current account as % of GDP 1.1 1.2 2.1
Note: (a) Change as a percentage of GDP (b) End-of-year basis;
Maastricht definition.
Graham Hacche, with Tatiana Fie, Iana Liadze, Miguel
Sanchez-Martinez, Jack Meaning and James Warren *
* All questions and comments related to the forecast and its
underlying assumptions should be addressed to Simon Kirby
(s.kirby@niesr.ac.uk). We would like to thank Angus Armstrong, Dawn
Holland, Simon Kirby and Jonathan Portes for helpful comments and
discussion and Chizoba Obi for compiling the database underlying the
forecast. The forecast was completed on 25 July, 2014. Exchange rate,
interest rates and equity price assumptions are based on information
available to 14 July 2014. Unless otherwise specified, the source of all
data reported in tables and figures is the NiGEM database and NIESR
forecast baseline.
Notes
(1) See, in particular, BIS Annual Report, June 2014,
(http://www.bis.org/publ/arpdf/ar2014e.pdf), and Janet Yellen,
'Monetary Policy and Financial Stability', 2 July 2014
(http://www.federalreserve.gov/newsevents/speech/yellen20140702a.htm).
(2) For a full description of how the changes have affected key
French data series, see HYPERLINK
"http://www.insee.fr/en/themes/comptes-nationalaux/defalt.asp?page=base-2010.htm" .
(3.) The federal government's deficit as a per cent of GDP is
projected by the Congressional Budget Office to decline from 4.1 per
cent in FY 2013 to 2.8 per cent in the current fiscal year ending in
September
Table 1. Forecast summary
Percentage change
Real GDPM
World OECD China EU-27 Euro USA Japan Germany
Area
2010 5.2 3.0 10.4 2.0 1.9 2.5 4.7 3.9
2011 3.9 2.0 9.4 1.7 1.6 1.8 -0.4 3.4
2012 3.2 1.5 7.7 -0.3 -0.6 2.8 1.4 0.9
2013 2.9 1.3 7.6 0.1 -0.4 1.9 1.5 0.5
2014 3.5 1.9 7.4 1.5 1.0 1.9 1.4 2.0
2015 3.7 2.4 7.2 2.0 1.8 3.0 0.6 1.9
2004-09 3.8 1.5 10.9 1.2 1.0 1.4 0.1 0.8
2016-20 3.9 2.7 6.6 2.4 2.3 2.9 0.8 2.0
Real GDPM World
trade (b)
France Italy UK Canada
2010 1.9 1.7 1.7 3.4 12.6
2011 2.1 0.6 1.1 2.5 6.0
2012 0.4 -2.4 0.3 1.7 2.8
2013 0.4 -1.8 1.7 2.0 2.8
2014 0.5 -0.1 3.0 2.3 4.5
2015 1.9 1.3 2.3 2.7 5.6
2004-09 1.1 0.0 1.1 1.6 4.8
2016-20 2.2 2.8 2.4 2.8 5.4
Private consumption deflator
OECD Euro USA Japan Germany France Italy UK Canada
Area
2010 1.9 1.6 1.7 -1.7 2.0 1.2 1.5 4.0 1.4
2011 2.4 2.4 2.4 -0.8 2.0 1.8 2.8 3.9 2.1
2012 2.0 1.9 1.8 -0.8 1.6 1.4 2.7 1.8 1.4
2013 1.5 1.2 1.1 -0.2 1.6 0.6 1.3 2.2 1.2
2014 1.8 0.6 1.6 2.1 1.0 0.7 0.4 1.7 1.7
2015 2.0 1.0 2.2 1.6 1.4 0.8 1.2 1.6 1.9
2004-09 2.1 1.8 2.2 -0.8 1.2 1.6 2.1 2.5 1.3
2016-20 2.4 2.0 2.5 1.2 2.1 1.5 2.0 2.0 1.7
Interest
rates (c)
Oil
($ per
USA Japan Euro barrel)
Area (d)
2010 0.3 0.1 1.0 78.8
2011 0.3 0.1 1.2 108.5
2012 0.3 0.1 0.9 110.4
2013 0.3 0.1 0.6 107.1
2014 0.3 0.1 0.2 106.5
2015 0.6 0.1 0.2 100.5
2004-09 2.8 0.2 2.6 63.2
2016-20 2.8 0.6 1.4 104.9
Notes: Forecast produced using the NiGEM model, (a) GDP growth at
market prices. Regional aggregates are based on PPP shares, 2005
reference year, (b) Trade in goods and services, (c) Central bank
intervention rate, period average, (d) Average of Dubai and Brent
spot prices.
* All questions and comments related to the forecast and its
underlying assumptions should be addressed to Simon Kirby
(s.kirby@niesr.ac.uk). We would like to thank Angus Armstrong, Dawn
Holland, Simon Kirby and Jonathan Portes for helpful comments and
discussion and Chizoba Obi for compiling the database underlying the
forecast. The forecast was completed on 25 July, 2014. Exchange rate,
interest rates and equity price assumptions are based on information
available to 14 July 2014. Unless otherwise specified, the source of
all data reported in tables and figures is the NiGEM database and
NIESR forecast baseline.
