Saturday, November 20, 2010

OECD: Economic Recovery Underway, Slower Than Expected (Video, Charts) *Challenge is self-sustained growth*


OECD Economic Outlook (November 18, 2010)

OECD: Economic Growth Picking Up, But Uneven

Economic Outlook The Organisation For Economic Co-Operation And Development has issued an Economic Outlook. OECD Chief Economist and Deputy Secretary-General Pier Carlo Padoan stated, "The recovery is underway, but it's going slower than we expected a few months back. It's also uneven, there might be uncertainties down the road. It is the combination of factors that are pulling down the recovery, including the withdrawal of fiscal stimulus, but other factors are taking their place especially through private investment. So, on balance, we will see a stronger growth next year and the year after that.”

Challenge is Transition from "Policy-Driven Recovery" to "Self-Sustained Growth" "The global recovery has been underway for some time now, although unemployment remains persistently high in many countries. Growth has been much stronger in emerging market economies, but remains weak and uneven in much of the OECD, and has faltered recently. As financial markets continue to normalise, and households and firms reduce their indebtedness, growth is projected to gradually strengthen in the OECD area in 2011-12. Against such background, the challenge will be to guide the transition from a policy-driven recovery to self-sustained growth. As stimulus is withdrawn, policy will have to provide a credible medium-term framework, including for the financial sector, to stabilise expectations and strengthen confidence. To this effect, international collaboration, notably within the G20 process, will be essential."

Enhanced Confidence "Enhanced confidence could result in a faster-than-projected recovery, especially given the much improved position of corporations and the strengthening position of households. However, there are significant risks on the downside, notably those stemming from renewed declines in house prices in the United States and the United Kingdom, high sovereign debt in some countries, and possible abrupt reversals in government bond yields. Were some of them to materialise and threaten to derail the recovery, additional policy responses would be warranted in countries that still have room for manoeuvre."
OECD Video Pier Carlo Padoan, Chief Economist of the OECD, says economic activity will pick up steam, but the recovery is uneven across OECD countries.

OECD: GDP Growth Projections by Quarter (Chart) Below is the OECD GDP Growth Projections by Quarter for the USA, Japan, the Euro Area, and the entire OECD. These are annualized percentage growth rates. The chart is for 10 quarters, from Q3 2010 through Q4 2011. The USA lowest quarter is +1.9% in Q4 2010 (now) and the highest is +3.7% in Q4 2012 (2 years from now). The Japan lowest quarter is +0.6% in Q2 2011 and the highest is +2.7% in Q1 2011 (next quarter). The Euro Area lowest quarter is +1.3% in both Q4 2010 (now) and Q1 2012 (next quarter). The highest quarter is +2.2% in both Q3 2012 and Q4 2012 (2 years from now). The Total OECD lowest quarter is +1.7% in Q4 2010 (now) and the highest is +3.2% in Q4 2012 (2 years from now). No negative GDP quarters are projected nor on the graph.

OECD: GDP Growth Projections by Quarter (Chart) Below is the OECD GDP Growth Projections by Year for the USA, Japan, the Euro Area, and the entire OECD. These are annual percentage growth rates. The chart is for 3 years: 2010, 2011, and 2012. The USA is a lackluster +2.7% for 2010, dips to a mediocre +2.2% in 2011, and then increases to flat +3.1% in 2012.  Japan is a healthy +3.7% in 2011, dropping to a worsening +1.7% in 2012, and dropping even further to discouraging +1.3% in 2012. The Euro Area is a mediocre +1.7% in 2011, continues a flat +1.7% in 2012, and increases slightly to an ongoing mediocre +2.0% in 2012. The Total OECD is a reasonable +2.8% in 2011, dropping to a mediocre +2.3% in 2012, and rebounding to a disappointing +2.8% in 2012.

Commentary The OECD statement said it all, "the challenge will be to guide the transition from a policy-driven recovery to self-sustained growth". That is, from government intervention, especially fiscal stimulus and quantitative easing, and hence increases in sovereign debt and ongoing debasements of currencies, to self-sustaining, growing economies. The USA and UK are of especial note facing this dilemma. The OECD GDP Growth Projections are hopefully low or this will be a protracted, and somewhat painful, recovery in the next 2 years. A GDP growth rate of +3.0% is considered "break-even" for employment - some jobs are being created but economic, and employment, growth is not robust. Based on this premise, the USA muddles along and achieves break-even in 2012, Japan and the Euro Area have problems ahead, and the Total OECD continues just below break-even. Overall, these projections are not positive or encouraging.

About the OECD

The OECD has 33 member countries, including the USA and Japan but not China and Russia. OECD brings together the governments of countries committed to democracy and the market economy from around the world to:
Support sustainable economic growth
Boost employment
Raise living standards
Maintain financial stability
Assist other countries' economic development
Contribute to growth in world trade
The Organisation provides a setting where governments compare policy experiences, seek answers to common problems, identify good practice and coordinate domestic and international policies.

The 33 OECD member countries are: Australia, Austria, Belgium, Canada, Chili, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, (South) Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States, plus the Euro Area and European Union. Accession countries are Estonia and Russian Federation. Enhanced Engagement Economies are Brazil, China, India, Indonesia, and South Africa. Some Non-Member Economies are also assessed by the OECD.

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