1. 2009 BIAC BUSINESS ROUNDTABLE Global economic growth: how deep will it fall and when will it bounce back? Jonathan Coppel Counsellor, Office of the OECD Chief Economist Lisbon, 21 May 2009

2. Outline  What are the forces bearing on the global economy?  How deep and long will the recession be?  How is macroeconomic policy responding?  Is the OECD too pessimistic?

3. Financial conditions are tight Note: A unit decline in the index implies a tightening in financial conditions sufficient to produce an average reduction in the level of GDP by 1/2 to 1% after 4-6 quarters. Source: Datastream; and OECD calculations. FORCES BEARING

4. Stock markets have plunged Source: Datastream. (Share price indices, 1 January 2007 =100) FORCES BEARING

5. House prices are falling… Source: Datastream. (Last data, share price indices,1 January 2007 =100) FORCES BEARING

6. …dragging down housing investment in all countries… Year-on-year growth rate Note: 2009q2 is forecasted for most countries. Source: OECD Economic Outlook 85 database. FORCES BEARING

7. Lower commodity prices will boost real incomes Source: OECD, Main Economic Indicators database. FORCES BEARING

8. Industrial production has tumbled… Index, January 2000 = 100 Source: Datastream. FORCES BEARING

9. …driving inventories up steeply… 1 Inventory/sales ratio, index January 2000 =100, seasonally adjusted, total business. 2 Inventory/sales ratio, index January 2000 =100, seasonally adjusted, mining and manufacturing. 3 Inventory/sales ratio, index January 2000 =100, seasonally adjusted, industry survey. Source: Datastream. FORCES BEARING

10. …and world trade to contract Source: OECD. (Annualised quarter-on-quarter growth, %) FORCES BEARING

11. Growth will collapse this year and stagnate in 2010 OECD area, unless noted otherwise ECONOMIC OUTLOOK

12. The recession is the most synchronised in post-war history Proportion of all OECD economies experiencing at least two consecutive quarters of downturn¹ 1.The last historical observation is for 2008q4. Source: OECD. ECONOMIC OUTLOOK

13. Unemployment will rise substantially Source: OECD. (In percentage of labour force) ECONOMIC OUTLOOK

14. Inflation will decrease Year-on-year growth rate, % Note: Inflation is based on consumer price index (CPI )for Japan, PCE deflator for the US, and harmonised index of consumer price for the Euro area. Source: OECD. ECONOMIC OUTLOOK

15. A slow recovery is foreseen Source: OECD. ECONOMIC OUTLOOK

16. Policy rates have been slashed 1. The solid line represents the policy rate of central banks. The blue line money market rates Source: Bloomberg, Bank of Japan, Datastream, ECB. Last observation : 4 May 2009 POLICY RESPONE

17. Fiscal policy is expansionary POLICY RESPONE (Cumulative impact on net lending, % of GDP, 2008-2010) 1. Simple OECD average. 2. Weighted OECD average. Source: OECD. Fiscal packagesAutomatic stabilisers

18. The effect of fiscal packages on GDP varies across countries Effect on level of GDP (%), 2009-10 Note: Bars indicate values based on the reference multiplier case. Crosses show estimates based on a high multiplier alternative. See Box 3.1 (p.114-116 of OECD Economic Outlook interim report) for explanation of the basis for the multiplier assumptions. Countries are arranged according to the size of effect in 2009. Source: OECD. POLICY RESPONE

19.  Some improvement in financial conditions and some economic indicators point to a bottoming-out.  Large risks remain, but they are now more evenly balanced.  Financial system still vulnerable to weakness in real economy. A faster increase in bond yields.  Policy stimulus could be more effective than assumed and financial problems resolved earlier. RISKS Is the OECD too pessimistic?

20. Money market conditions have improved Last observation: 14 May 2009 Note: Spread between three-month EURIBOR and EONIA swap index for euro area; spread between three-month LIBOR and overnight indexed swap for the United States. Source: Datastream. RISKS

21. Business confidence shows signs of an upturn Note : Series have been normalised at the average for the period starting in 1985 and are presented in units of standard deviation. Source: Datastream. RISKS

22. General government gross financial liabilities Source: OECD. RISKS

23. High government debt tends to raise long-term interest rates Note: Bars represent average across all OECD countries for which data is available over the period 1994 to 2007. Short-term interest rates are typically rates on 3-month Treasury bills and long-term interest rates those on 10-year government bonds. Source: OECD. (Spread between long term and short term vs. government debt in % of GDP) RISKS

24. A final word… “The national budget must be balanced. The public debt must be reduced. The arrogance of the authorities must be moderated and controlled. Payments to foreign governments must be reduced, if the nation doesn’t want to go bankrupt. People must again learn to work, instead of living on public assistance.”

25. Thank you Jonathan.coppel@oecd.org …from Cicero in 55 B.C!