OECD Economic Outlook: "not that bad in view of the recent shocks"

The OECD released its latest Economic Outlook today. Though some fear that falling house prices and the global credit crunch might drive the US into a recession, that view is not shared in Paris. Their US forecast expects weakness in the US housing sector to drag down growth in the near term but it "is unlikely to trigger a recession". GDP growth is forecast to 2.0% in 2008. Private consumption will be weak - but public and non-residential investment should remain quite perky, and the cheap US dollar will see net exports add to growth next year just as it they have this year. Here's their summmary of the US outlook:

Healthy gains in private consumption have helped to keep GDP growth above trend thus far this year. However, the correction in residential construction is likely to accelerate over the near term, and housing wealth could decline which, together with weaker labour market conditions, could lead to lower consumption growth over time. GDP should therefore slow to a pace below potential in 2008 and then recover in 2009, although there are considerable downside risks.

This assessment is broadly in line with recent Federal Reserve and private sector forecasts. An outside risk of recession, to be sure - but not considered that likely. (For another recent official US economic overview, see yesterday's Congressional testimony by CBO Director Peter R. Orszag).

But what about the overall economic outlook? You can watch a webcast of the news conference by OECD's acting Chief Economist Jorgen Elmeskov here. Or just read his 18 page handout (PDF), which contained this precis:

Several shocks have hit OECD economies recently: financial turmoil, cooling housing markets, and higher prices of energy and other commodities. Fortunately, they have occurred at a time when growth was being supported by high employment that boosts income and consumption; by high profits and strong balance sheets that underpin investment and resilience in the face of financial losses and tighter credit; and by still buoyant world trade driven by robust growth in emerging economies. Hence, although near-term growth has been revised down virtually everywhere in the OECD area, the baseline scenario depicted in this Economic Outlook is actually not that bad in view of the recent shocks.

Of course, as the accompanying chartset makes very clear, there are still plenty of reasons to be concerned. Energy and commodity prices have surged, headline inflation has picked up, credit conditions are tight, house prices are decelerating, consumer confidence is softening, and job creation is slowing. Against that, fiscal positions have improved and world trade is buoyant.

It's not the end of the world, but it's not exactly time to crack open the champers either. Or as Elmeskov put it at the news conference: “It’s not a recession but obviously it’s not going to feel all that great either.”

Comments

[Lafayette]

Article: "although near-term growth has been revised down virtually everywhere in the OECD area, the baseline scenario depicted in this Economic Outlook is actually not that bad in view of the recent shocks"

Right ... if you've got a job. If you're waiting for one ... well, the wait gets longer.

The EU area is forecast to have a total growth rate of 1.9% p.ann. for 2008. Developed economies need 2.5% to trigger job creation, so the EU is way, way, way below that target rate.

The EU is trying to shake the gloom that has beset its economic growth since, say, the early 1990s. It has proven to be incompetent at managing a common growth policy. Economic growth in the EU is historically a patchwork from the very good (the UK, some parts of Scandinavia) to very bad (namely France and Germany, the EU's principle economic motor economies).

It is good that statistical reporting should, finally, be amalgamating the EU so that it can be compared with its sister-economy, the US. But the comparison derived is not flattering to the EU. It is still rife with backward work regulations that are prompting businesses to dislocate eastward or contract to the Far East. Internal economies are, still, relatively moribund -- despite the boom in real estate investments throughout the EU, which has been able to sustain internal demand but not grow it. And, R&D investments are not at a level necessary to stimulate demand with product innovations. (When, ô when, will the EU come up with an iPod or an iPhone!?!)

'Tis a shame. The EU needs to take a long, hard look at what is constraining its growth and then make a coordinated effort to address those constraints. They are multiple and across the board.

There is still hope that the EU's manifest destiny of economic superpower status is just around the corner. But it has been, once again, pushed beyond the horizon by a year or two. True, this may be the fault of externalities, like the sub-prime mess in the US (thank you, thank you, Uncle Sam, this is only the second time in ten years that you export your "free market" speculative frenzies to the rest of the world! When ya gonna learn?) Or oil prices.

But, pointing fingers at "externalities" is not going to help the EU rectify its own "internalities" that continue to inhibit its growth rate.