It wasn’t long after the financial crisis struck before people began talking about the road to recovery. Many years on, it turns out that there is no such road. Instead, there are roads – several of them – all leading OECD countries back, some more quickly than others, to modest growth.
Among the major OECD economies, the fastest recovery seems to be happening in the United States, according to the latest edition of the OECD Economic Outlook, released today. Revived confidence and repairs to the financial system are driving growth, and the number of people out of work is falling. By the end of next year, the OECD projects, the U.S. will economy will be growing year-on-year by 3.4%.
Taking a rather slower road to recovery is the Euro area, which is projected to see growth of just 1.8% by the end of 2014. That might not seem like much, but it’s an improvement on estimates for growth in the current quarter, which hover around zero. Europe continues to be weighed down by financial concerns and, of course, unemployment, which is still rising.
Here, the contrast with the performance of the U.S. is striking: The Outlook estimates unemployment in this current quarter stands at around 7.5% in the U.S. and 12% in the Euro zone. By the fourth quarter of next year, it projects that the figure for the U.S. will have fallen to 6.7%, while in Europe it will have risen to 12.3%.
Joblessness is less of a concern in Japan – where it’s currently estimated to stand at around 4.2% – but even that low level looks set to improve over the next 18 months as the government enacts substantial economic reform. The Outlook describes this policy shift as “welcome”, but it warns that the task of boosting sustainable growth, beating deflation and tackling the public debt will require a “delicate balancing act”.
Japan isn’t the only OECD country that will have to do some careful manoeuvring. It’s just one of a number of OECD governments that have used very low interest rates and other, more unconventional, measures to stimulate their economies. On the one hand, continuing with those measures indefinitely risks creating bubbles; on the other, ending them suddenly could provide an unwanted economic shock. Again, some delicate footwork will be required.
Nevertheless, and despite several other caveats, this edition of the Outlook offers a modestly upbeat outlook on the global economy, with growth seen as firming both in OECD and other major economies. As OECD Chief Economist Pier Carlo Padoan says in this video, “we remain convinced that there’s light at the end of this tunnel”.