Economic outlook for OECD countries
In a small but concise report OECD give us the economic outlook for OECD-countries. The report is optimistic on the economic future on both sides of the Atlantic.
"After weakening in late 2005 economic momentum on both sides of the Atlantic has picked up. The US should expect a firm rebound in the first quarter of 2006 while recovery in the Japanese economy appears to be broad-based. Presenting interim projections for major OECD economies, OECD Chief-Economist Jean-Philippe Cotis said rising domestic demand should underpin a rebound in activity in the euro area by the middle of this year, although output remains below potential."
Lets dig a bit deeper though, where we will also find some sources of concern or at least prudence.
- First off the report re-assures that the economic slowdown in the US in the last quarters of 2005 happened on the back of the summer hurricanes and as such should not be seen in a broader/long term context. Well well, can we accept this? Apparently it seems reasonable but if we are talking about the long-term state of the US economy you might want to look at the twin-deficits and ponder, at least just a bit.
- Japan is enjoying a broad based recovery which intially was driven by exports and fixed business investment but now domestic demand as well as residential spending are picking up. Do I really need to repeat myself here ? I think not, just consult the links below!
as well as Edward Hugh's latest post on the matter.
- In relation to the Euro-zone the report calls for prudence and the need to distinguish between hard and soft indicators which again is the same thing as prudence; at least as I see it.
"The euro area stands out in that “hard” indicators continue to paint a distinctly weaker picture than
the “softer” but more forward-looking survey information." - I think this is a point well made, maintaining prudence that is.
The report also, conveniently, comes with a lot of charts which allow us to present our own analyses, but that will be another day.
NewEconomist beat me to it by 20 minutes and that deserves mention ... particularly because he cites a FT article dealing with the report.
"The European Central Bank must avoid rushing to raise interest rates as eurozone growth picks up, Jean-Philippe Cotis, the chief economist of the Organisation for Economic Cooperation and Development, said on Monday.
Mr Cotis said the central bank should not lift interest rates again without “unambiguous signs that [economic] slack is shrinking and that underlying inflation pressures are mounting”.
The OECD analysis suggests that neither of these conditions has been met: European output will be below potential this year and inflationary pressure remains weak.
The criticism of the ECB, which came amid an optimistic interim assessment of the world economy, is bound to create irritation in Frankfurt. The bank has been at odds with the OECD since it called for a half-point cut in rates last spring."