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Tracking the consumer evolution of financial services

OECD forecast revised upward, but underlying economic forecast conditions remain unchanged

The OECD today produced a report that is sure to be controversial. They are upgrading all their forecasts both for 2009, and 2010, but that FT headline mask the real underlying situation as it applies to consumers and businesses which I see as relatively no change from other forecasts.

OECD sees strongest outlook since 2007 | FT

Country Forecast for 2009 Forecast for 2010
Current Previous Current Previous
US -2.8% -4.0% +0.9% 0%
China +7.7% +6.3% +9.3% +8.5%
Japan -6.8% -6.6% +0.7% -0.5%
Eurozone -4.8% -4.1% 0% -0.3%
Source: OECD

The report notes that the unemployment rates and slackness in the world economies will persist at end of 2010.  The optimism reflected in the headline appears centred on the GDP numbers, which are being driven by Government spending, not consumer or business spending.  Recovery is still looking L-shaped.

This chart on housing is illustrative of the depth of the shift.  The Canadian Price to Rent/ Income remains high relative to others.

world house prices

Here is the link to the report.

OECD June 2009

Here are selected country headlines.


The sharp contraction that began in the last quarter of 2008 intensified in the first quarter of 2009, led by collapsing exports, fixed investment and stockbuilding. The pace of contraction appears to be slowing, but recessionary conditions are expected to linger through the third quarter, with only a slow recovery thereafter. Unemployment is projected to keep rising until early 2010 and inflation pressures to stay muted.


The US economy is going through a severe and protracted recession which is projected to bottom out later this year, as fiscal and monetary support takes hold and the housing cycle bottoms out. In 2010, even after a recovery gets under way, GDP growth is likely to remain weak because of the slowdown
in capital accumulation, negative wealth effects and still adverse, albeit improving, financial conditions. In this environment, a considerable degree of economic slack, especially in the labourmarket, is likely to persist over the projection period, bringing inflation to very low rates.


The global crisis triggered a deep recession that is likely to be the most severe in Japan’s post-war history. The contraction in world trade led to a sharp plunge in exports and business investment, while falling employment and wages have reduced private consumption, leading to a projected
output decline of almost 7% in 2009. Fiscal stimulus is expected to lift output growth into positive territory from the second half of 2009, although at a rate that remains below 1% through 2010.

Euro Area

The euro area is in a deep recession, with external demand collapsing and domestic demand being weakened by tight financial conditions, rising unemployment and heightened uncertainty. Activity is expected to contract throughout 2009 and pick up only gradually in 2010, as the tensions in financial markets start to fade and the full effects of policy stimulus are felt. Rapid growth in unemployment and a large negative output gap will continue to dampen inflationary pressures throughout the projection period.


The economy is in a severe recession, with output projected to decline by 4.3% in 2009 and recover only mildly in 2010. The financial crisis has severely impaired the supply of credit and house prices have fallen sharply, thus restraining business and household spending. The depreciation of sterling is mitigating the downturn, but cannot overcome falling foreign demand. The unemployment rate is projected to rise towards 10% in 2010, with inflation well below the 2% target for an extended period.

Written by Colin Henderson

June 24, 2009 at 09:32

Posted in economy

Tagged with , ,

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