OECD Economies Recovering Earlier Than Expected
The OECD offers a relatively upbeat outlook in its latest interim economic assessment, but warns pace of recovery will be slow.
Given the positive economic news and based on incoming high-frequency indicators, OECD short-term forecasting models point to an earlier recovery than envisaged a few months ago. As a consequence, the unprecedented rate of deterioration in labour market conditions witnessed over the past year should ease. Nonetheless, numerous headwinds imply that the pace of the recovery is likely to be modest for some time to come.
Substantial slack combined with the prospect for a weak recovery, implies that strong policy stimulus will continue to be needed in the near term. Regarding monetary policy, taking the first steps towards normalisation of policy interest rates from their current exceptionally low levels should in most cases and on current prospects wait until well into 2010 and in some cases even beyond.
It is also important that central banks communicate their intentions explicitly, if conditionally, so as to affect interest rates at longer maturities more effectively. On fiscal policy, it is important that announced stimulus measures be implemented promptly.
However, the possibility of a recovery taking hold a little sooner than envisaged only a few months ago diminishes the likelihood that further fiscal stimulus will be needed in those countries having scope for such action.
Looking further ahead, OECD countries need to prepare for the removal of the exceptional degree of support afforded by current monetary and fiscal policy stances. In this regard, preparing credible exit strategies and fiscal consolidation plans now, even if actual implementation will only commence later, is desirable.
The OECD provides some useful charts on financial conditions:
And also on improving bank lending trends:
And on the wide range of increases in unemployment: joblessness has risen by over 4 percentage points in the US since the beginning of 2008, compared with an in increase of almost 9 points in Spain and less than 1% in several other European countries and South Korea.
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