[HSC] Economist: 27 November — 3 December 2017

The week in review.

The focus of this week’s article is on the OECD’s latest Economic Outlook. Rather interestingly, the report’s forecasts of short and medium-term economic growth within the global economy differ significantly. The OECD seeks to account for this disparity and suggests appropriate policy responses. This week also saw a couple of important releases from outside of Australia including, US economic growth, Euro Area unemployment and Japanese inflation and unemployment.

Required Readings

  • The immediate future of the global economy looks positive, but what happens after that is much less clear.

1. OECD Economic Outlook

The OECD’s publication of their latest Economic Outlook was the economic highlight of the week. The report provided estimates of economic growth around the world and outlined the strategies that need to be undertaken so as to boost growth.

The global economy is forecast to grow by 3.6% this year, 3.7% next year and then 3.6% in 2019. Within the United States, growth is estimated to be 2.2% in 2017, 2.5% in 2018, but only 2.1% in 2019. Across the Euro Area, growth is expected to fall gradually over the next three years, with expected rates of 2.4% this year, 2.1% the following year and then 1.9% in 2019. The expected trend in China’s growth also follows a similar path, with the OECD forecasts showing a decline in growth from 6.8% in 2017 to 6.6% in 2018 and then 6.4% in 2019.

The picture for Australia is fairly similar, with economic growth predicted to rise from 2.5% this year to 2.8% in 2018, before slipping to 2.7% in 2019. This pickup in growth is derived from an expected increase in non-mining investment and export receipts.

The decline in growth rates around the world in 2019 is indicative of the medium-term risks prevalent in the global economy. These risks come from two primary sources, low wages growth and high debt levels. Low wages growth is constraining real income growth, in turn, this inhibits individuals’ ability to improve their standards of living. High debt levels in many economies raise questions about the sustainability of the economic growth currently being achieved. The OECD report stresses the need for an integrated, global approach including both fiscal and structural reform to address this as the monetary stimulus, which has been prevalent all around the world since the Global Financial Crisis, comes to an end.

HSC Relevance

  • The latest OECD Economic Outlook presented a positive view of the short-term future of the global economy, but a more mixed view of the medium-term situation.
  • Economic growth in the global economy is forecast to be 3.6% in 2017, 3.7% in 2018 and then 3.6% in 2019. This trend is reflected in most major economies including the United States, the Euro Area and China.
  • Australia’s economic growth is forecast to be 2.5% in 2017, which is substantially above the current growth rate of 1.8%. Growth is then expected to hit 2.8% in 2018, before tailing off in 2019.
  • The slowdown predicted in 2019 is a byproduct of weak real wages and high public and private debt levels.
  • The OECD argues that there is a critical need for a global policy response to improve growth, maintain financial stability and ensure the global economy remains resilient to shocks.

2. Elsewhere around the Globe

  • The US economy experienced an annualised growth rate of 3.3% in the third quarter, slightly above both the preliminary estimate and market expectations.
  • Unemployment in the Euro Area fell to 8.8% in October, the lowest rate since January 2009.
  • Japanese inflation came in at 0.2% in October, notably lower than the 0.7% figure recorded in September. Unemployment for the same month was measured at 2.8%, where it has been since June.