My Ing Bank Account The Netherlands

The world economy.

World Overview

Global growth projections for 2013-14 are unchanged, overall, from
three months ago, with some upward revisions, most notably for Japan,
offset by some downward revisions, including for the group of non-OECD
countries. With world output growth again projected at 3.3 per cent in
2013 and 3.7 per cent in 2014, the forecast again points to a global
recovery that is
hesitant
  
adj.
Inclined or tending to hesitate.


hesi·tant·ly adv.
, below par, and uneven.

This outlook reflects, especially in the advanced economies, weak
demand resulting from several factors, especially continuing fiscal
consolidation and deleveraging by private sectors,
impaired credit

 intermediation in many cases, and significant policy uncertainties. Of
most concern is the continuing
slump

 in the Euro Area, which is expected
to remain in recession in 2013 and seems unlikely, on current policies,
to experience better than weak growth next year. In the
United States
 officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world’s third largest country in population and the fourth largest country in area.
,
private sector demand has continued to be strengthened by a substantial
improvement in the financial positions of banks and households, but this
is being partly offset by accelerated fiscal adjustment. Our growth
projections for Japan have been raised to 2 per cent
per annum

 in
2013-14 to take account of the announcement of significant fiscal and
monetary
stimulus
 /stim·u·lus/ () pl. stim´uli   [L.] any agent, act, or influence which produces functional or trophic reaction in a receptor or an irritable tissue.
 measures. But the main drivers of global growth remain
the developing and emerging market economies, especially in Asia;
prospects seem good for a broad strengthening of growth in these
economies this year and next, following the moderate slowdown
experienced in 2012.

Our global projections are summarised in table 1. The
methodological approach to the forecast and key underlying assumptions
are discussed in Appendix A, while detailed projections for 40 countries
are reported in Appendix B at the end of this chapter.

The growth of world trade in
goods and services

 in 2012, at 2.8 per
cent, fell below the growth of world output; and the World Trade
Organization’s estimates indicate that world merchandise trade last
year grew by only 2.0 per cent, the second lowest annual growth rate in
32 years of comparable data. We project only a moderate recovery in
trade growth in 2013-14. The recent weak growth of trade, a vital engine
of global growth, points to the importance of resisting
protectionist
  
n.
The advocacy, system, or theory of protecting domestic producers by impeding or limiting, as by tariffs or quotas, the importation of foreign goods and services.
 pressures and
reviving
  
v. re·vived, re·viv·ing, re·vives

v.tr.
1. To bring back to life or consciousness; resuscitate.

2. To impart new health, vigor, or spirit to.

3.
 negotiations on multilateral trade
liberalisation. Crafts (2013) in this Review emphasises the importance
of avoiding policy mistakes that were made in the
interwar period

, when
a steep rise in protection contributed to the Great Depression.

In the advanced economies, output and employment gaps generally
remain wide. In the Euro Area, unemployment reached a new peak of 12 per
cent in
February
 see month.
, while in the United States continued moderate declines
in unemployment –to 7.6 per cent in March- have been partly due to
reduced labour-force participation. The employment situation in emerging
market and developing countries is more mixed, with indications of
capacity
constraints

 in some cases. These countries, nevertheless,
account for three-quarters of the increase of about 4 million in global
unemployment in 2012, to a total of about 197 million. (1)

Inflation and inflation expectations globally remain generally

subdued
  
tr.v. sub·dued, sub·du·ing, sub·dues
1. To conquer and subjugate; vanquish. See Synonyms at defeat.

2. To quiet or bring under control by physical force or persuasion; make tractable.

3.
, helped by a
stabilisation

 of commodity prices over the past two
years; the
expansionary
  
adj.
Tending toward or causing expansion:  
 monetary policies in operation in many countries
seem to have had no significant inflationary effects. Consumer price
inflation in the advanced economies is projected to remain around 1.8
per cent annually in 2013-14-in most cases, close to or below central
banks’ targets–with continuing declines elsewhere lowering the
global average towards 3-3 1/2 per cent a year from 4.2 per cent in
2012.

The improvement in financial markets that began in late 2012 has
been broadly maintained, with government bond yields in the major
advanced economies remaining near historic lows and significant gains in
major equity markets, with some stock markets reaching all-time peaks in
early April. Neither the financial crisis in
Cyprus
 , Gr. Kypros, Turk. Kıbrıs, officially Republic of Cyprus, republic (2005 est. pop. 780,000), 3,578 sq mi (9,267 sq km), an island in the E Mediterranean Sea, c.40 mi (60 km) S of Turkey and c.
 in March nor the
continuing failure to reach a political agreement on the federal budget
in the United States appears to have had a significant impact on major
markets. In emerging markets, risk spreads on sovereign and corporate
bonds have narrowed with rising capital inflows. These favourable
conditions in financial markets may
augur
 see omen.
 well for the global economy,
but they may also be vulnerable to disappointments about policies as
well as economic and financial developments. The financial market
assumptions underlying the forecast are discussed in Appendix A. The
possibility of a partial reversal of the recent improvement in markets
poses a clear
downside risk

 to the outlook.

A major factor underlying improved financial market conditions is
the stance of monetary policy in the advanced economies, which has not
only kept short-term interest rates at exceptionally low levels for more
than four years, but also worked through unconventional measures,
including official operations in government bond markets and other asset
markets, to reduce yields on longer-term and, in some cases, riskier
assets. These policies have brought essential benefits in supporting
demand and activity, but they also carry greater risks the longer they
are in place. Thus, while reducing banking sector vulnerabilities in the
short term, they may over time be delaying the repair of banks’
balance sheets by encouraging the rolling over of nonperforming loans.
They may also, more broadly, encourage risk-taking, leverage, and asset

bubbles

. Thus in the United States, there has recently been a
significant increase in the issuance of high-yield corporate bonds,
unusual for such an early stage in a
cyclical

Of or relating to a variable, such as housing starts, car sales, or the price of a certain stock, that is subject to regular or irregular up-and-down movements.
 
upswing

. (2) Moreover, the
eventual (or anticipated) unwinding of easy monetary conditions, and
associated reversals in bond markets, could expose financial
vulnerabilities among companies and households facing higher long-term
interest rates.

Easy monetary policies in the advanced economies are also having
international spillovers, especially in the form of capital flows to
emerging market and developing economies. Concerns have arisen about the
danger that associated upward pressures on these countries’
currency values can lead either to currency appreciation and associated
unwarranted losses of international competitiveness, or to excessive
domestic credit growth if the currency pressure is resisted through
official
intervention

 in the foreign exchange market or easier domestic
monetary conditions. In China, for example, recent months have seen both
increased concerns about domestic credit growth and a
resumption

 of
large-scale accumulation of
foreign exchange reserves

 to absorb exchange
market pressure. There has even been talk of ‘currency wars’.
To some extent, the recovery of capital flows to emerging markets is a
natural process reflecting their relatively strong growth performance
and prospects, and in some cases appreciation of their currencies is a
desirable part of the global
rebalancing

 that is needed. Also, while
easy monetary policies in the advanced economies may indeed put
additional upward pressure on emerging market economies’
currencies, sight should not be lost of the beneficial spillovers of the
improved growth in demand in the advanced economies that their monetary
expansion engenders. Federal Reserve Chairman Bernanke, in a recent
speech in
London
 city (1991 pop. 303,165), SE Ont., Canada, on the Thames River. The site was chosen in 1792 by Governor Simcoe to be the capital of Upper Canada, but York was made capital instead. London was settled in 1826.
, noted that the Fed’s models suggest that these
effects are roughly offsetting, so that accommodative monetary policies
in the advanced economies do not appear to have adverse consequences for
output and exports in the emerging market economies. (3) The National
Institute’s model, NiGEM, indicates that the benefits tend to

outweigh
  
tr.v. out·weighed, out·weigh·ing, out·weighs
1. To weigh more than.

2. To be more significant than; exceed in value or importance:
 the costs, at least beyond the short term (see Box A for
further discussion). Thus the effects of exchange rate changes brought
about in association with monetary expansion in some countries are not
to be viewed as akin to ‘beggar-thy-neighbour’ exchange rate
policies that do not involve demand expansion.

Box A. Impact of loose monetary policy in advanced economies on
emerging markets

By Dawn Holland

A loosening of the monetary policy stance at home generally causes
a depreciation of the domestic currency in foreign exchange
markets, whether under the assumption of uncovered interest parity
or in more general portfolio balance models. A depreciation of the
domestic currency, in turn, necessarily implies an appreciation of
foreign currencies. The recent ultra-loose monetary stance in the
advanced economies has raised concerns in emerging markets about
its effects on their competitiveness and capital inflows, leading
to talk of currency wars. Federal Reserve Chairman Bernanke has
noted that the Federal Reserve's models suggest that the effects of
upward pressure on emerging market economies' currencies are
largely offset by the improved growth in demand in the advanced
economies that results from the looser monetary stance. While this
may be true for some countries, the emerging market economies are a
heterogeneous group, and the effects in individual economies may
differ.

In this box we use the National Institute's model, NiGEM, to assess
the expected impact of a loose monetary stance in the advanced
economies on the major emerging market economies of China, India,
Russia and Brazil. The impact on their respective GDPs in the first
year of a temporary monetary loosening in the US, Japan, Euro Area
and UK, depends to a large extent on the sensitivity of domestic
demand to export revenue. Export volumes from each of the emerging
market economies would be expected to rise in response to the
shock, as the estimated rise in external demand of I-I 1/2 per cent
would tend to offset any loss of competitiveness. The emerging
market economies tend to be global price takers, rather than price
setters, and their relative export prices would be expected to rise
by less than I per cent in response to a 4-6 per cent appreciation
of the exchange rate. However, nominal export values would be
expected to fall once the revenue from exports is converted into
domestic currency at the higher rate of exchange (figure A I).

Based on historical behaviour, the estimated relationships
underlying the NiGEM model suggest that domestic demand in Russia
and India is more sensitive to export revenue than domestic demand
in China or Brazil. As a result, the model projects a small
negative impact on GDP growth in Russia and India in the first year
following a monetary expansion in the advanced economies. This
negative effect dissipates by the second year. A positive impact on
GDP growth is expected in Brazil and China.

In the case of China, the stronger positive impact on GDP projected
by NiGEM is partly a reflection of the exchange rate regime, which
fluctuates within a relatively narrow band of I per cent against a
targeted value relative to the US$. As a result, monetary stimulus
in the US is effectively a monetary stimulus in China as well. This
is one factor behind the rising inflationary pressures observed in
China recently, as the average impacts on GDP growth and inflation
are likely to be matched roughly I for I in the first three years.

[FIGURE A1 OMITTED]

[FIGURE A2 OMITTED]

At the same time, however, emerging market countries need to be
alert to the risks associated with increased capital inflows, including
not only possibly excessive currency appreciation and domestic credit
growth but also rising external debt and foreign currency exposure. The
appropriate policy response will depend on the
circumstances

, and may or
may not involve intervention in the foreign exchange market, adjustments
of the stance and mix of
macroeconomic
  
n. (used with a sing. verb)
The study of the overall aspects and workings of a national economy, such as income, output, and the interrelationship among diverse economic sectors.
 policies, the use of
macroprudential instruments, and capital controls. These economies will
also need to ensure that they have sound defences against capital flow
reversals, including appropriate macroprudential policies, and sound
banking regulation and supervision.

In the context of talk of ‘currency wars’, weak trade
growth,
dormant

 multilateral trade talks, and
pervasive

adj indicates that a condition permeates the entire development of the individual.
 protectionist
pressures, it was appropriate and encouraging that G-20 finance
ministers and central bank governors have agreed, as noted in their
February and April 2013 Communiques, that ‘Monetary policy should
be directed toward domestic price stability and continuing to support
economic recovery’, that they would ‘refrain from competitive
devaluation’, ‘not target our exchange rates for competitive
purposes …’, and ‘be
mindful
  
adj.
Attentive; heedful:  See Synonyms at careful.


mind
 of unintended negative effects
stemming from extended periods of monetary easing’; and also that
they agreed to ‘resist all forms of
protectionism

 and keep our
markets open’.

With the global economy now in its fifth year of working its way
out of the largest financial crisis for several decades, prospects for
the medium term are unusually uncertain. In many cases, progress with
fiscal consolidation, private sector deleveraging, and the repair of
financial sectors has far to go; all these factors form constraints on
growth that may remain for several more years. In some advanced
economies, major questions have arisen about the true size of output
gaps, possible structural shifts in the sensitivity of inflation to
output and employment gaps, and trend rates of productivity growth. In
the Euro Area, there are major uncertainties about feasible progress
towards completion of the economic and monetary union particularly
through the establishment of a banking union and fiscal union–and about
progress with adjustment toward sustainable external and internal
balances, including reasonably high levels of employment in the weakest
economies. In addition, there are uncertainties
surrounding
  
tr.v. sur·round·ed, sur·round·ing, sur·rounds
1. To extend on all sides of simultaneously; encircle.

2. To enclose or confine on all sides so as to bar escape or outside communication.

n.
 the
inevitable slowing of trend growth in the economies that in recent years
have been the most dynamic, especially China.

Our medium-term projections for 2015-19 reflect particular
assumptions about both
demand-side

 policies and supply conditions. On
the demand side, fiscal consolidation is expected to continue through
the period in many of the major economies, given debt levels close to or
above 100 per cent of
GDP
 (guanosine diphosphate): see guanine.
. Our assumptions about supply conditions
relate to productivity growth, demographic developments, labour market
participation, and factors driving the capital-output ratio. In Box B,
our medium-term projections for the major economies are
decomposed
  
v. de·com·posed, de·com·pos·ing, de·com·pos·es

v.tr.
1. To separate into components or basic elements.

2. To cause to rot.

v.intr.
1.
 into
labour productivity growth and the underlying assumptions explaining
labour input dynamics. We expect a slight slowing of global growth in
2015-19, to 4.2 per cent a year, as compared with 4.4 per cent in the
pre-crisis period 2003-8. This is more than accounted for by a projected
slowing of growth in non-OECD economies as their productivity levels

converge
  
v. con·verged, con·verg·ing, con·verg·es

v.intr.
1.
a. To tend toward or approach an intersecting point:

b.
 further towards the advanced economies. Most notably, average
growth in China in 2015-19 is projected at about 7 per cent a year, down
from 11 per cent in 2003-8. The partly offsetting rise in medium-term
growth in the
OECD
 see Organization for Economic Cooperation and Development.
 group of countries, to 2.6 per cent from 2.3 per cent
a year, is mainly accounted for by faster growth in the United States,
reflecting a gradual closing of the output gap and some recovery in
labour force participation.

Box B. Decomposition of medium-term growth projections

By Dawn Holland and Miguel Sanchez-Martinez

Our medium-term projections reflect assumptions about both
demand-side policies and supply conditions. On the demand side,
fiscal consolidation is expected to persist throughout much of the
next decade in many of the major economies, given debt levels in
excess of 100 per cent of GDP. Supply conditions depend on our
assumptions on productivity growth, demographic developments,
labour market participation and factors driving the desired
capital-output ratio. In this box we decompose our medium-term
growth projections to 2019 into measures of the growth of labour
productivity and labour input, to give some insight into the
assumptions underlying these forecasts. We model trend productivity
growth in NiGEM as a very gradual approach towards an expanding
global technology frontier, with a significant degree of inertia,
so that recent productivity trends have an important role in the
short- to medium-term.

BRIC economies

Figure B I decomposes GDP growth in each of the BRIC economies into
growth in GDP per capita (a proxy for productivity) and population
growth, for a pre-crisis period, the period since the financial
crisis and our forecast to 2019.

China has undergone a period of rapid catching up over the past two
decades. GDP per working age person has increased at an average
rate of close to 9 per cent per annum since 2001, much more
rapidly than in any of the other BRIC economies, and indeed
elsewhere in the world. While this is not too surprising given the
distance from the technology frontier of the Chinese economy in the
1990s, if this pace of productivity growth were to persist, GDP per
Worker (1) in China would be expected to exceed that in the US by 2021,
making China the new global technology leader. This would seem
very unlikely, and we have therefore assumed a moderation in
productivity growth in China over the forecast period. Our
medium-term forecast for China sees GDP growth of about 7 per cent
per annum on average over 2015-19, which reflects this moderation
in productivity growth as well as the demographic turning point in
China related to the one-child policy introduced in 1979. By
contrast, the IMF forecasts average annual growth in China over
2015-18 of 8.5 per cent, which would require a rate of productivity
growth that would rapidly narrow the productivity gap between the
US and China, which currently stands at 45-50 per cent.

Population growth in Brazil and India is also expected to moderate
slightly over the forecast horizon, but not to the extent expected
in China. Russia, on the other hand, has a demographic outlook more
similar to some of its European neighbours, with population on a
downward trajectory. Productivity growth in India is expected to
remain high, but to ease gradually over the coming years as the
economy converges towards the technology frontier. Productivity
growth in Brazil has been comparatively weak since 2001, but has
accelerated moderately since 2007, in stark contrast to
developments in Russia. Our forecast assumes some convergence in
GDP per capita growth rates across the BRIC economies, although we
do not anticipate any rapid shifts away from recent historical
patterns.

[FIGURE B1 OMITTED]

Advanced Economies

Figure B2 disaggregates our forecast for GDP growth for 2013-19 in
major advanced economies into the contributions from labour
productivity and labour input, measured as total hours worked.
Germany stands out as the only country where labour input is
expected to decline over the forecast horizon. However, the
weakness in growth of labour supply is expected to be partly offset
by relatively strong growth in labour productivity. However, the
latter will not be sufficient to allow average GDP growth of more
than about 1.2 per cent per annum over our forecast period.

The US is expected to exhibit the highest growth in real output
among the G-7 economies. This is underpinned by the combination of
a growing working age population, anticipated declines in
unemployment and steady advances in workers' productivity levels,
at rates similar to that expected in Germany. Labour productivity
growth in Japan and the UK is expected to remain moderate, at about
1.4 and 1.2 per cent per annum, respectively, while in Italy labour
productivity is forecast to grow by less than I per cent per annum
on average, given its relatively flat profile since 2000.
Productivity growth in France will also remain weaker than in the
other major advanced economies, reflecting a slow recovery from the
very weak productivity developments exhibited since 2007.

Figure B3 delves more deeply into the factors underlying labour
input developments in Germany, Italy and Japan. All three economies
are expecting declines in the population of working age over the
forecast horizon, with the most significant declines anticipated in
Japan, reflecting an acceleration in a process that has been
ongoing since 1997.

Labour input can be decomposed into contributions from demographic
developments in the population of working age, labour force
participation, unemployment and average hours of work per employee.
According to this decomposition, the fall in total number of hours
worked in Germany can be attributed almost entirely to the large
reduction in the number of individuals potentially employable. The
modest increment in labour input expected for Japan in the next few
years relies on a significant recovery in average hours worked,
reversing the downward trend that has been ongoing since the mid-1990s.
Italy is expected to compensate for a predicted decline in
its working age population of around 0.2 per cent per annum by,
first, increasing labour force participation, from a relatively low
level by European standards and, second, by fostering job creation
for the unemployed, while maintaining average hours worked roughly
constant.

[FIGURE B2 OMITTED]

[FIGURE B3 OMITTED]

NOTE

(1) Calculated in purchasing power parity terms.

Prospects for individual economies.

Euro Area

The Euro Area remains in recession, with the effects of continuing,
though
diminishing
  
v. di·min·ished, di·min·ish·ing, di·min·ish·es

v.tr.
1.
a. To make smaller or less or to cause to appear so.

b.
, fiscal
austerity

See also Asceticism, Discipline.

Amish

conservative Christian group in North America noted for its simple, orderly life and nonconformist dress. [Am. Hist.
 being exacerbated, in the countries
of the
periphery
 /pe·riph·ery/ () an outward surface or structure; the portion of a system outside the central region.periph´eral


n.
1.
, by difficult financial conditions. Fiscal drag is
expected to be significantly reduced in 2013, with increased attention
appropriately being paid by policymakers to progress in reducing
structural rather than nominal deficits, and the European Commission
accordingly relaxing deficit targets in a number of cases. Output is
again projected to fall slightly this year, by 0.4 per cent, before
growing in 2014 for the first time in three years, albeit by only 0.9
per cent.

Growth divergences persist among member countries of the Euro Area.
Further significant
contractions
 Obstetrics Volleys of tightening and shortening of myometrium–uterine muscle, which occur during labor, cause dilatation and thinning of the cervix and aid in the descent of the infant in the birth canal. See Labor. Cf
Decelerations.
 in 2013 are projected for
Greece
 Gr. Hellas or Ellas, republic (2005 est. pop. 10,668,000), 50,944 sq mi (131,945 sq km), SE Europe. It occupies the southernmost part of the Balkan Peninsula and borders on the Ionian Sea in the west, on the Mediterranean Sea in the south, on
,

Italy
 , Ital. Italia, officially Italian Republic, republic (2005 est. pop. 58,103,000), 116,303 sq mi (301,225 sq km), S Europe.
,
Portugal
 , officially Portuguese Republic, republic (2005 est. pop. 10,566,000), 35,553 sq mi (92,082 sq km), SW Europe, on the western side of the Iberian Peninsula and including the Madeira Islands and the Azores in the
 and
Spain
 Span. España , officially Kingdom of Spain, constitutional monarchy (2005 est. pop. 40,341,000), 194,884 sq mi (504,750 sq km), including the Balearic and Canary islands, SW Europe.
, while modest positive
growth rates

 are
projected for
Austria
 , Ger. Österreich [eastern march], officially Republic of Austria, federal republic (2005 est. pop. 8,185,000), 32,374 sq mi (83,849 sq km), central Europe.
,
Belgium
 , Du. België, Fr. La Belgique, officially Kingdom of Belgium, constitutional kingdom (2005 est. pop. 10,364,000), 11,781 sq mi (30,513 sq km), NW Europe.
,
Ireland
 Irish Eire  [to it are related the poetic Erin and perhaps the Latin Hibernia], island, 32,598 sq mi (84,429 sq km), second largest of the British Isles.
 and Germany. There are also
large divergences in unemployment, which have widened significantly
since the onset of the crisis. This is illustrated in figure 1; between
2008 and 2012 not only did average unemployment in the Euro Area
increase, from 6.9 per cent to 11.7 per cent, but also the difference
between the lowest and highest unemployment rates widened considerably,
from about 8 percentage points to as much as 20 percentage points.

[FIGURE 1 OMITTED]

Spreads among government bond yields, having narrowed in late 2012
following the ECB’s announcement in September of Outright Monetary
Transactions, have generally remained compressed. It is particularly
notable that yields in Italy have declined further in face of the
political uncertainties resulting from the
inconclusive

 elections in
late February. The financial crisis in Cyprus, in March, had little
immediate impact beyond the country itself. However, the resolution of
the crisis involves, for the first time in the crises that have

afflicted
  
tr.v. af·flict·ed, af·flict·ing, af·flicts
To inflict grievous physical or mental suffering on.


[Middle English afflighten, from afflight,
 the Euro Area, the
imposition

 of capital losses on uninsured
bank depositors, and it remains to be seen whether this, or even reports
of the initial proposal, later abandoned, to impose levies on insured as
well as uninsured depositors, will have destabilising effects on the
behaviour of bank depositors in the Euro Area.

Despite the narrowing of spreads among government bond yields,
financial markets in the Euro Area remain
fragmented
  
n.
1. A small part broken off or detached.

2. An incomplete or isolated portion; a bit:

3.
, with the private
sector in the periphery, where there is a considerable
overhang

 of
corporate debt, facing
inordinately
  
adj.
1. Exceeding reasonable limits; immoderate. See Synonyms at excessive.

2. Not regulated; disorderly.
 high borrowing costs despite the
ECB’s
accommodative monetary policy
 
. This reflects continuing
weaknesses in the financial system and points to the need for further
action to clean up banking systems through recapitalisation and

restructuring

, without weakening the financial positions of the
respective sovereigns. Direct recapitalisation of weak banks by the
European Stability Mechanism would help the process. Timely progress
towards a banking union for the Euro Area, meanwhile, remains essential,
to promote the
reintegration
 /re·in·te·gra·tion/ ()
1. biological integration after a state of disruption.

2. restoration of harmonious mental function after disintegration of the personality in mental illness.
 of financial markets, the delinking of
sovereigns from banks, the removal of suspicions of national bias in
supervision, and the effective transmission of monetary policy. In
March, preliminary agreement was reached among the European Parliament,
the Commission, and the Council on the establishment of a single
supervisory mechanism (
SSM

abbr.
surface-to-surface missile
) at the
ECB

, and draft legislation to this
effect is being considered by the Parliament, with the aim of making the
SSM operational by mid-2014. Not only may this legislative process be
subject to delays, but also the SSM needs to be complemented by a single
resolution mechanism for failed institutions, together with a common
deposit guarantee scheme, and agreement has yet to be reached on these.
Agreement on common rules for bank resolution seems likely to be a
particularly difficult challenge, given the role of systemically
important banks and the apparent reluctance of economically strong
countries to provide the contingent fiscal support that will be needed
to underpin the resolution mechanism, even if its primary source of
funding will be levies on the banks. In fact, recently reported
statements by German officials seem to have rejected a common deposit
guarantee scheme ‘for the
foreseeable
  
tr.v. fore·saw , fore·seen , fore·see·ing, fore·sees
To see or know beforehand:
 future’, (4) and to

envisage
  
tr.v. en·vis·aged, en·vis·ag·ing, en·vis·ag·es
1. To conceive an image or a picture of, especially as a future possibility:

2.
 only the
harmonisation

 of national deposit guarantee schemes.

[FIGURE 2 OMITTED]

Important among the root causes of the crisis in the Euro Area have
been the divergences of international competitiveness and associated
payments imbalances that developed in the decade following the
establishment of the monetary union. Since the crisis erupted, there has
been some slow and painful correction of these divergences, notably
through absolute reductions in unit labour costs in the countries that
have suffered the most severe recessions (see figure 2). It is unclear,
however, to what extent the corrections seen thus far are merely
cyclical rather than sustainable, and significant divergences and
imbalances remain, notably including Germany’s current account
surplus, projected to
widen
  
tr. & intr.v. wid·ened, wid·en·ing, wid·ens
To make or become wide or wider.


widen·er n.
 further to 7.8 per cent of GDP in 2014. With
Euro Area inflation, and inflation expectations, comfortably within or
below the ECB’s target of ‘below but close to 2 per
cent’, there is scope for official interest rates (in particular,
the ECB’s
refinancing

 rate of 0.75 per cent) to be reduced further;
given downward nominal wage rigidities, the moderately higher inflation
that this would allow would promote further adjustment of relative
costs. Demand and activity in the Euro Area would also be boosted if
Germany and other surplus countries with fiscal space would contribute
to adjustment through expansionary fiscal measures.

Germany

Our growth projections for Germany in 2013 and 2014 have been
revised down slightly, to 0.5 per cent and 1.3 per cent respectively. As
in our last forecast, the projection for average growth this year is
weighed down by the 0.6 per cent drop in GDP in the last quarter of
2012. We expect activity to pick up moderately in the course of this
year, though recent leading indicators have been mixed. The April
purchasing managers’ index points to the first decline in private
sector business activity since last November, and business confidence
has also weakened.

As in 2012, fiscal policy is expected to be broadly neutral this
year and next, with the budget close to balance. Given Germany’s
strong international competitiveness, net trade is expected to continue
to make a positive contribution to growth, and this seems likely to
increase as the global economy strengthens. A component of domestic
demand that is especially
buoyant

 is housing investment. The strong rise
in house prices has continued.
According to

prep.
1. As stated or indicated by; on the authority of:

2. In keeping with:

3.
 the BulwienGesa AG data for
125 towns and cities house prices rose in 2012 by about 51, 1/4 per
cent, and although this index is likely to have exceeded the overall
index for Germany (413 towns and municipalities) which will be available
at a later date, the picture is consistent with the trend acceleration
that can be seen in other price indicators (see
Bundesbank

, 2013).
Housing supply has also been expanding; the construction of apartment
blocks has increased significantly. Favourable financing conditions have
been stimulating housing demand, which may also have been boosted by
capital inflows from the Euro Area’s periphery. The increase in
borrowing for house purchase, and the pace of increase in prices, have
raised questions about the sustainability of the rise in household debt
and the possible need for stricter prudential controls, such as
loan-to-value ratios.

Unemployment has remained low, at about 5.4 per cent in recent
months. In fact, while GDP contracted in the last quarter of 2012,
employment rose by 0.1 per cent. The unemployment rate may
understate
  
v. un·der·stat·ed, un·der·stat·ing, un·der·states

v.tr.
1. To state with less completeness or truth than seems warranted by the facts.

2.
 the
slack

 in the economy, however, as the weak growth of labour
productivity in recent years, common to much of Europe, may indicate
significant potential for greater utilisation of hoarded labour.

France

The French economy has continued to weaken, with unemployment in
recent months rising to levels that have not been seen for 16 years (3.2
million, close to 11 per cent of the labour force). After zero growth of
GDP in 2012 as a whole and a 0.3 per cent drop in the fourth quarter,
INSEE’s business climate index points to further
deterioration

n.
The process or condition of becoming worse.
,
particularly in the building and services sectors. We forecast a small
decline in GDP of 0.2 per cent this year, and only weak growth of 0.5
per cent in 2014.

Significant fiscal consolidation will again
weigh on

Verb

to be oppressive or burdensome to:

Verb 1.
 the economy in
2013, for a third successive year. The public sector deficit stood at
4.8 per cent of GDP in 2012, down from 5.2 per cent in 2011 but 0.3
percentage points above the official target. The government revised this
year’s deficit target from 3.0 to 3.7 per cent of GDP, but
reiterated its commitment to structural balance by 2017.

Fiscal adjustment is
compressing
  
tr.v. com·pressed, com·press·ing, com·press·es
1. To press together:

2. To make more compact by or as if by pressing.

3.
 domestic demand, which is expected
to fall by 0.8 per cent this year. Rising taxes, as well as rising
unemployment and declining real wages, all point to a continuing decline
in households’ real
disposable income

 in 2013, depressing both
private consumption and housing investment. Business investment is also
set to continue to decline in the short term in the light of poor demand
prospects and low margins.

After this year, the pace of fiscal consolidation is set to ease.
Public debt is expected to peak in 2014 at about 94 per cent of
GDR

See Global Depositary Receipt (GDR).
 The
government’s target of fiscal balance by 2017 is expected to be
revised to a planned deficit of 0.7 per cent of GDR

Exports have remained sluggish and industrial production has been
in decline reflecting France’s weak international competitiveness
as well as the
economic stagnation

 of its Euro Area trading partners. A
revival of growth in France will depend not only on further progress
towards sustainable public finances and economic recovery in the Euro
Area but also on reforms to tackle the country’s competitiveness
challenge, including reforms in the labour market.

Italy

After six consecutive quarters of GDP decline, and a 2.4 per cent
drop in 2012 as a whole, Italy’s economic outlook for 2013-14
remains weak and uncertain. The inconclusive outcome of the February
general election and the
ensuing
  
intr.v. en·sued, en·su·ing, en·sues
1. To follow as a consequence or result. See Synonyms at follow.

2. To take place subsequently.
 two-month political
deadlock

 added to
policy uncertainties, although government bond yields have fallen
further, to about 4 per cent at the 10-year maturity, along with those
of other sovereigns.

Short-term indicators point to a further decline in economic
activity this year, though milder than in 2012. Our forecast suggests a
fall in output of 1.3 per cent in 2013–larger than the 0.9 per cent
drop we projected last time–with a slow recovery from 2014, assuming
that the new government makes further progress in tackling the
country’s fiscal and structural challenges. Markets welcomed the
news in late April of the formation of a new government, driving
government borrowing rates down to historical lows, and also boosting
the stock market.

Yet, continuing fiscal consolidation this year, rising unemployment
(11.6 per cent in the first quarter this year) and falling real
disposable income are weighing heavily on
consumer spending

, while both
business and housing investment continue to weaken, partly as a result
of high borrowing costs. As a result, domestic demand is expected to
fall by a further 2.4 per cent this year and inflation (as measured by
the private consumption
deflator

) to soften to 2.1 per cent. Net exports
will continue to be the only component of aggregate demand to make a
possible contribution to growth.

The Italian government’s Economy and Finance Document for
2013, issued in April 2013, called for pro-growth policies, starting
with a one-off package of measures aimed at injecting liquidity (40
billion [euro] over 2013-14) into the economy by speeding up payments
in
arrears

 owed by general government bodies to the private sector. The
planned net borrowing target for this year is set at 2.4 per cent of
GDP, down from 2.9 per cent last year. A reduced pace of fiscal
adjustment next year should assist a slow recovery, and the new Prime
Minister has urged for a further easing of austerity.

Spain

Spain’s recession is expected to continue this year as a
result of further fiscal adjustment, downward pressure on wages in the
very weak labour market, and further deleveraging by what remains one of
the most
indebted
  
adj.
Morally, socially, or legally obligated to another; beholden.


[Middle English endetted, from Old French endette, past participle of endetter, to oblige
 private sectors in the EU. We are projecting a larger
GDP fall in 2013 (1.8 per cent) than in 2012 (1.4 per cent) but the pace
of
contraction
 in physics: see expansion.


contraction, in grammar
 in writing: see abbreviation.


contraction – reduction
 is expected to moderate over the course of this year.
Output is expected to
stabilise

 in 2014, which should see modest average
growth of about 0.2 per cent.

In the first quarter of 2013, unemployment rose above 6 million (27
per cent) for the first time. Moreover, it seems unlikely to have
reached its upper limit. About half of those who have become unemployed
since the start of the crisis worked in the construction sector, where
employment declined from over 2.7 million at the end of 2007 to about
1.0 million at the end of 2012. The continuing decline in housing
investment and house prices is expected to
erode
 , city (1991 urban agglomeration pop. 361,755), Tamil Nadu state, S India, on the Kaveri River. The city is located in a cotton-growing region, and its industries include cotton ginning and the manufacture of transport equipment.
 employment in the
sector further.

Despite the economic recession, the government broadly implemented
its sizeable fiscal consolidation plan in 2012, although it missed the
deficit target by a narrow margin. The fiscal deficit, including support
for the financial sector (equivalent to 31/2 per cent of GDP), widened
to 101 1/4 per cent of GDP from 81/2 per cent in 2011, but the
cyclically adjusted deficit was reduced by close to 3 per cent of GDP.
Furthermore, as in other countries of the Euro Area, financial market
stress indicators in Spain have improved since late 2012, and
Spain’s 10year government bond yield has declined to below 5 per
cent recently. This helped the
Spanish government

 raise nearly 35 per
cent of its medium-and long-term funding needs for 2013 in the first
three months, January to March.

Since the start of the crisis unit labour costs in Spain have
declined by more than in any other Euro Area country except Ireland.
Reflecting the resulting improvement in competitiveness, Spain’s
exports to destinations outside the Euro Area have been growing, and
increasing net exports are expected to contribute positively to growth
this year and next. The external current account, which was in deficit
to the tune of 5 per cent of GDP in 2009, is expected to be roughly in
balance in 2014.

Central and Eastern Europe

 (EU8+2)

The countries of Central and Eastern Europe have continued to be
affected by spillovers from the financial crises and recession in the
Euro Area, not only through trade but also through tighter
external
financing

 conditions and reduced funding by western European banks for
their subsidiaries in the region. Domestic policy tightening has also
weighed on demand and activity in several cases. As a result we maintain
the view that growth in the EU8+2 block will
decelerate
  
v. de·cel·er·at·ed, de·cel·er·at·ing, de·cel·er·ates

v.tr.
1. To decrease the velocity of.

2.
 this year. A
moderate recovery may
materialise

 throughout the region next year.
Figure 3 shows the expected distribution of growth rates across the
region in 2013 against the background of the EU15 countries’
expected growth rates in 2013, and forecasts for the EU8+2 region for
2014.

[FIGURE 3 OMITTED]

The
Czech Republic
 Czech Česká Republika (2005 est. pop. 10,241,000), republic, 29,677 sq mi (78,864 sq km), central Europe. It is bordered by Slovakia on the east, Austria on the south, Germany on the west, and Poland on the north.
, Hungary, and Slovenia fell back into recession
in 2012, and a further decline in output is projected this year for
Slovenia, which has been experiencing financial pressures (discussed
below). The economic situation in Hungary reflects high levels of debt
in both the public and private sectors, and also the damaging effects on
confidence of political developments. These countries seem unlikely to
see significant positive growth until 2014. Among the other countries in
the group, Latvia is the only country that did not experience an
economic slowdown last year, although the other Baltic countries managed
to maintain growth in the 3-3 1/2 per cent range. Growth in the Baltics
is projected to continue at a relatively high rate, although output is
projected to remain significantly below potential. In Bulgaria, Poland,
Romania, and Slovakia, growth seems likely to remain below par this year
before recovering in 2014. In Poland, the largest country in the region,
growth is being held back this year by low external demand and further
declines in EU-funded public investment.

One of the factors behind
diverging
  
v. di·verged, di·verg·ing, di·verg·es

v.intr.
1. To go or extend in different directions from a common point; branch out.

2. To differ, as in opinion or manner.

3.
 growth in the region remains
the situation of the banking sectors. Recently Slovenia has faced
particular difficulties, which have been compared to those of Cyprus.
However, there are important differences. In particular, Slovenia is not
a tax haven, and
financial services

 represent a much smaller part of its
economy; banking sector assets amount to less than 1.5 times
Slovenia’s annual GDP, compared with 8 times in Cyprus before its
crisis. The Slovenian authorities have acknowledged that reforms are
needed, in the banking sector and in the economy more broadly, but
intend to address these issues without external assistance.

United States

In the United States, the economic recovery, though still
tepid
  
adj.
1. Moderately warm; lukewarm.

2. Lacking in emotional warmth or enthusiasm; halfhearted:  
 overall, has become
noticeably
  
adj.
1. Evident; observable:

2. Worthy of notice; significant.
 stronger than in most other advanced
economies, thanks partly to substantial progress in repairing the
financial system and in improving households’ balance sheets. Thus,
for example, the ratio of households’ debt service payments to
personal disposable income, in the fourth quarter of 2012, was about 40
per cent below its pre-crisis peak, and lower than at any time since the
early 1980s.

This progress, spurred by the Federal Reserve’s expansionary
monetary policies, including its purchases of mortgage backed
securities, has been reflected in a pick-up in credit growth, a
significant strengthening of the housing market, and a recovery in
construction activity, with housing starts rising sharply to levels, in
March, that were the highest since mid-2008. There has also been some
broader strengthening in private sector demand, and in output and
employment, but these developments have been considerably more hesitant
and less clear, and, as in our last forecast, GDP growth is projected to
be about 2 1/4 per cent per annum in both 2013 and 2014.

This tepid pace of economic recovery is accounted for in large part
by contractionary fiscal policy. The structural fiscal deficit was
reduced by 1 1/4 per cent of GDP in 2012, and a larger adjustment, of 1
3/4 per cent of GDP, is projected for this year. The fiscal cliff was
avoided at the beginning of the year, but the measures taken to resolve
that dispute–especially the
expiration

 of a reduction in payroll
taxes–are
restraining

 demand. In addition, the
sequester
 v. to keep separate or apart. In so-called “high-profile” criminal prosecutions (involving major crimes, events, or persons given wide publicity) the jury is sometimes “sequestered” in a hotel without access to news media, the general public or their
, which began
in March in the absence of a budget agreement, and which imposes
significant spending cuts on a wide range of programmes, is expected
alone to reduce GDP growth in 2013 by about 1/2 a percentage point if
maintained until the end of the fiscal year. (5)

[FIGURE 4 OMITTED]

The current pace of fiscal tightening is clearly excessive given
the weakness of the recovery, but major budget uncertainties remain. In
the short term, agreement on the debt ceiling will need to be reached by
mid-year. And to establish control over the debt path in the medium
term, agreement will need to be reached on
entitlement

 reforms and other
much-needed measures, including reform of the tax system. Our
projections assume further fiscal tightening measures, amounting to
about 1 per cent of GDP, in 2014, in line with current policy plans,
with more moderate consolidation of about 1/2 per cent of GDP per annum
over the medium-term horizon.

Current and prospective fiscal headwinds point to a continuing need
for easy monetary policy for some time. The projections suggest that
although strengthening growth may provide some scope for reducing the
pace of
quantitative easing

 later this year, unemployment is unlikely to
fall below the Federal Reserve’s 6.5 per cent intermediate
threshold for an increase in official interest rates to take place early
in 2015.

There are
downside

 risks to the forecast of the unemployment rate,
given the large pool of
inactive
  
adj.
1. Not active or tending to be active.

2.
a. Not functioning or operating; out of use:

b.
 working-age individuals. Since 2007,
the labour force participation rate has declined by more than 2
percentage points, equivalent to a withdrawal of 4 1/2 million workers
from the labour force. While the observed unemployment rate has declined
by 2.4 percentage points since its peak in 2009, the
inactivity
 Sedentary activity Internal medicine An absence of physical activity and/or exercise, a predictor of obesity. See Couch potato. Physical activity, Vigorous exercise
 rate has
declined by just 0.8 percentage points (see figure 4).

If the
rebound
,
n/v 1. a recovery from illness.
n 2. an outbreak of fresh reflex activity after withdrawal of a stimulus


 adjective
 in the housing market encourages some inactive
participants to re-engage with the labour force, the unemployment rate
may
recede
  
intr.v. re·ced·ed, re·ced·ing, re·cedes
1. To move back or away from a limit, point, or mark:

2.
 more gradually than currently forecast. However, this would
be a welcome development in the US labour market, as the recovery in
labour force participation would have a long-run positive impact on the
productive capacity of the US economy.

Canada

Growth in the
Canadian
 , river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma.
 economy, which weakened in 2012 to 1.8 per
cent even as the US economy gathered some steam, is projected to slow
further this year to 1.6 per cent. Fiscal consolidation, high household
debt, and a cooling housing sector are restraining domestic demand.
Consumer price inflation, 1.2 per cent in the year ended February, is
well below the Bank of Canada’s 2 per cent target.

As mentioned in the Overview, a debate has recently emerged about
the potential effects of
protracted
  
tr.v. pro·tract·ed, pro·tract·ing, pro·tracts
1. To draw out or lengthen in time; prolong:

2.
 QE by the US Federal Reserve on
competitiveness in the rest of the world, including Canada. Figure 5
illustrates the expected effects of a monetary
loosening
 /loo·sen·ing/ () freeing from restraint or strictness.


loosening of associations
 by the Federal
Reserve on the main Canadian macroeconomic indicators, according to a
simulation study using NIESR’s model, NiGEM. The analysis suggests
that a monetary easing associated with a 5 1/2 per cent effective
depreciation of the US dollar would lead to an effective appreciation of
the
Canadian dollar

 in nominal terms by about 7 per cent. The effects on
competiveness would be short-lived, however, and the real effective
exchange rates in both the US and Canada would be expected to return to
base within four years.

The expected boost from dampened inflationary pressures and
interest rate cuts is projected to outweigh a negative effect from the
drop in exports and have a positive impact on GDP in the first year.

[FIGURE 5 OMITTED]

Japan

Shifts in recent months by the government elected last December
towards more expansionary fiscal and monetary policies have raised
short-term prospects for growth and the end of
deflation
 see inflation.


deflation

Contraction in the volume of available money or credit that results in a general decline in prices. A less extreme condition is known as disinflation.
. A

supplementary budget
 supplement n (Pol) →  
 worth about 2 per cent of GDP is expected to
stimulate the economy over 2013-14 together with the recently announced
‘new phase of monetary easing’ by the Bank of Japan (BoJ),
which aims to raise inflation from negative levels to 2 per cent per
annum in two years. The BoJ intends to double the monetary base over the
next two years by purchasing long-term bonds, thereby both expanding its
asset holdings (‘quantitative easing’) and
lengthening
,
n the use of various massage or muscle energy techniques to relax and stretch muscle and connective tissue.
 their
average maturity (‘qualitative easing’). These measures have
in recent months contributed to a depreciation of the yen of about 17
per cent in effective terms and to a rise in the Japanese stock market
to levels not seen since 2008.

Our current forecast takes these policy measures into account and
as a result we have revised up our projections for GDP growth in 2013
and 2014 to about 2 per cent per annum, from projections of 0.6 and 1.4
per cent, respectively, three months ago. We allow for fiscal stimulus
of around 1 per cent of GDP in both 2013 and 2014. Japan’s fiscal
multipliers are relatively high (see Barrell et al., 2013), and this
raises growth by about 1 percentage point this year and about 1A
percentage point in 2014. The remaining improvement in the growth
outlook for this year (about 1/2 percentage point) is related to the
aggressive monetary easing, which has driven a depreciation of the
exchange rate, a fall in long-term interest rates and a rise in equity
prices.

Longer-term prospects for growth and financial stability in Japan
will depend both on the
formulation
 /for·mu·la·tion/ () the act or product of formulating.


American Law Institute Formulation
 of a concrete plan for medium-term
fiscal consolidation and on the implementation of structural reforms to
raise trend growth. Without a credible medium-term consolidation plan,
the government’s stimulus measures may put upward pressure on
long-term interest rates, which would threaten debt sustainability. The
government’s plans for structural reforms are due
to be announced

 in the coming months. An important element of these reforms is expected
to be measures designed to encourage greater female participation in the
labour force.

China

In China, fears of a ‘hard landing’ have waned. After
slowing in 2012, growth seems to have
stabilised

 at an annual pace
somewhat above the official target of 7 1/2 per cent, with inflation
moderating. But concerns remain about excessive credit growth and
financial sector fragilities.

The 7.7 per cent growth of GDP in the year to the first quarter of
2013 was lower than generally expected on the basis of such leading
indicators as strong
PMI

 readings and liquidity expansion. The slight
slowdown from 7.9 per cent growth in the year to the fourth quarter is
accounted for by weaker growth of domestic demand, mainly
government-related consumption; external demand contributed positively
to growth. We still project GDP growth in 2013 as a whole, at 7.8 per
cent, to exceed the official target of 7.5 per cent, on the basis of
accommodative monetary policy and strong infrastructure investment.

In the medium term much will depend on success with a range of
reforms aimed at restructuring the economy and
weaning

n the period of transition from breast feeding to eating solid foods.


weaning

the act of separating the young from the dam that it has been sucking, or receiving a milk diet provided by the dam or from artificial sources.
 it off its recent
dependence on investment and exports. The growth model that has served
the country well over the past decade, resulting in an annual average
growth rate above 9 per cent, needs to be changed as it has produced
domestic as well as external imbalances and risks to financial
stability.

A recent
downgrade

 to China’s long-term
sovereign credit

 rating to A-plus from AA-minus by
Fitch Ratings

An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris.
 was based on concerns
about the risks that excessive local government borrowing poses to the
economy. Local governments have significantly increased their borrowing
since 2008, as part of the stimulus package. In order to avoid
balanced
budget

A budget in which the expenditures incurred during a given period are matched by revenues.
 constraints, they financed investment through creation of
financing vehicles, which were mostly land-collaterised bank loans. The
worry is over the quality of the majority of these types of loans, as
well as the weak state of local government finances. If the central
government takes on all the liabilities, including those of local
governments, then it is estimated that the government
debt to GDP ratio

 could reach 73 per cent,6 three times larger than in 2011.

We simulated the effect of tightening bank lending conditions on
the Chinese economy using the National Institute’s model, NiGEM, by
raising the effective cost of private sector borrowing by 1 percentage
point permanently. The results of the simulation show that a 1
percentage point increase in borrowing costs (or an equivalent
tightening in lending conditions –a qualification that is important
given that China’s financial system is still heavily regulated)
would result in a reduction of potential output in China by about 0.6
per cent in the medium term. For comparison, the magnitude of the impact
on GDP in the medium term is about three times as large as that of a
similar shock in the US, which is largely explained by China’s much
higher investment to GDP ratio as compared to the US. There is a limited
effect from the shock on inflation, which is not surprising given the
regulated financial and monetary system.

Financial sector and social reforms will be necessary to ensure
healthy output growth in the medium to long term. In considering
medium-term prospects for growth in China, the rate of GDP growth may be
decomposed into the growth rates of the working-age population and GDP
per head of the working-age population, a close proxy for labour
productivity. In recent decades rapid GDP growth in China has reflected
rapid growth of productivity- the most rapid among the
BRIC

BRIC Brooklyn Information & Culture
BRIC Biological Research Information Center
BRIC Benign Recurrent Intrahepatic Cholestasis
 economies.
This is not surprising given the distance from the global technology
frontier of the Chinese economy in the early 1990s. However, if
productivity continued to increase at this rate China would be expected
to become the new global technology frontier by 2021. This would seem
unlikely, and therefore we have assumed a moderation of productivity
growth, from an average of 8.3 per cent a year during 1995-2010 to just
below 7 per cent a year during 2015-20. By taking into account also a
projected decline in the working-age population from 2017, we forecast
about 6 1/2 per cent annual trend growth in the medium term.

[FIGURE 6 OMITTED]

Brazil

Brazil has recently been suffering from both weakened growth and
increased inflation. Growth fell sharply to 0.9 per cent in 2012 from
7.5 per cent two years earlier, but is projected to pick up to 3.2 per
cent this year and 3.4 per cent in 2014, partly in response to the
Central Bank’s lowering of official interest rates by more than 5
percentage points between late 2011 and late 2012. Private investment is
also being boosted by targeted policy measures.

Monetary easing, however, has contributed to a renewed increase in
inflation, which in March rose to 6.6 per cent on a twelve-month basis,
marginally above the target range of 4.5-6.5 per cent. This, in turn,
led the Central Bank to raise its key (SELIC) interest rate in April to
7.5 from 7.25 per cent. Especially given supply constraints
-unemployment, at about 5.7 per cent recently, is historically low–it
seems likely that further increases in the official rate will be needed
to restrain inflation. Fiscal policy is also being tightened in 2013,
with the primary budget surplus expected to increase from about 2 per
cent to above 3 per cent of GDP. Thus the projections show only a
moderate strengthening of growth.

Brazil’s external current account balance has moved from
modest surplus to modest deficit in recent years as commodity markets
have become less favourable. Some further increase in the deficit seems
likely in 2013-14 as domestic demand rises relative to export markets.

[FIGURE 7 OMITTED]

India

The economic slowdown in India has been more pronounced than
forecast, with GDP growth in 2012, at 4.1 per cent, the lowest level in
eleven years. Growth is projected to strengthen moderately to 5.3 per
cent in 2013 and 6.5 per cent next year, as a result of improving export
demand and recent pro-growth policy measures. Significant structural
challenges remain to be addressed, however, if the objective of
strengthening growth over the medium term is to be achieved.

The recently announced budget for 2013-14 underlined the
government’s aim of reducing the budget deficit from its recent
level of around 81A per cent of GDP.7 However, the planned improvements
in the budget rely heavily on a boost to revenues, which is subject to
downside risks.

There has recently been an interesting
divergence

 between two of
the main inflation indicators, with inflation as measured by the
Wholesale Price Index (
WPI

) easing, while inflation in terms of the
Consumer Price Index (
CPI

) has continued to rise (figure 8). While the
explanation for the divergence is not entirely clear, it seems likely
that prices in the WPI tend to be flexible prices that are relatively
sensitive to market forces, while the retail prices in the CPI tend to
be administered and more
sticky

. The WPI may in some respects provide a
better guide to inflationary pressures in the economy, suggesting that
the
Reserve Bank of India

 may have more room for monetary easing than
CPI inflation suggests.

[FIGURE 8 OMITTED]

Russia

Russia’s short-term economic outlook has worsened
significantly. GDP growth slowed to 3.6 per cent in 2012 from 4.3 per
cent in 2011, and in the first quarter of 2013 GDP was only 1.1 per cent
higher than a year earlier–the weakest four-quarter growth since 2009.
The slowdown is attributable partly to subdued demand in Russia’s
export markets, especially in Europe, although the slowdown in China has
also had an impact, especially on exports of primary commodities. In
addition, the weakening of oil prices not only reduces export revenues
but also dampens domestic demand and narrows the scope for fiscal
stimulus as over half of all government revenue is directly related to
oil. We project a further slowing of annual average growth, to 2.4 per
cent this year and 1.6 per cent in 2014.

To support growth, Russia may resort to monetary stimulus, but the
room for interest rate cuts is limited, given inflationary pressure. Our
forecast puts inflation at about 5 per cent for both the current year
and 2014. With regard to the effects on the Russian economy of the
financial crisis in Cyprus and its resolution, it is impossible to
estimate the exact loss to Russian depositors but we expect the
macroeconomic effect to be
negligible

.

According to Moody’s’ estimates, Russian deposits in
Cypriot banks amount to 30-40 billion [euro] of an estimated total of
about 70 billion. [euro] The Russian official gross foreign asset
position stood at 1,100 billion [euro] in the second quarter of 2012 so
an assumed
write-off

 of 10-20 billion [euro] would be equivalent to a
modest 1-2 per cent reduction of official foreign assets. While Cyprus
continues to maintain capital controls, only limited amounts can be
legally withdrawn from Cypriot bank accounts. Once the capital controls
are removed, Russian capital is expected to leave the island. It may be
repatriated, in which case it could boost investment in Russia, or
depositors might prefer to
relocate
  
v. re·lo·cat·ed, re·lo·cat·ing, re·lo·cates

v.tr.
To move to or establish in a new place:

v.intr.
 funds to a different off-shore
location, which might be considered more likely.

Appendix A: Summary of key forecast assumptions

By Dawn Holland

The forecasts for the world and the UK economy reported in this
Review are produced using NIESR’s model, NiGEM. The NiGEM model has
been in use at the National Institute for forecasting and policy
analysis since 1987, and is also used by a group of about 40 model
subscribers, mainly in the policy community. Most countries in the OECD
are modelled separately, and there are also separate models of China,
India, Russia,
Hong Kong
 , Mandarin Xianggang, special administrative region of China, formerly a British crown colony (2005 est. pop. 6,899,000), land area 422 sq mi (1,092 sq km), adjacent to Guangdong prov.
, Taiwan, Brazil,
South Africa
 Afrikaans Suid-Afrika, officially Republic of South Africa, republic (2005 est. pop. 44,344,000), 471,442 sq mi (1,221,037 sq km), S Africa.
, Estonia, Latvia,
Lithuania, Slovenia, Romania and Bulgaria. The rest of the world is
modelled through regional blocks so that the model is global in scope.
All models contain the determinants of domestic demand, export and
import volumes, prices, current accounts and
net assets

See owners’ equity.
. Output is tied
down in the long run by factor inputs and technical progress interacting
through production functions, but is driven by demand in the short to
medium term. Economies are linked through trade, competitiveness and
financial markets and are fully simultaneous. Further details on the
NiGEM model are available on http://nimodel.niesr.ac.uk/.

There are a number of key assumptions underlying our current
forecast. The interest rates and exchange rate assumptions are shown in
tables A1-A2. Our short-term interest rate assumptions are generally
based on current financial market expectations, as implied by the rates
of return on treasury bills of different maturities. Long-term interest
rate assumptions are consistent with forward estimates of short-term
interest rates, allowing for a country-specific term premium in the Euro
Area.

Interest rates in the major advanced economies are expected to
remain at their extremely low levels at least until the end of 2014.
Interest rate rises in Canada are expected to
preempt
 or pre-empt  
v. pre·empt·ed, pre·empt·ing, pre·empts

v.tr.
1. To appropriate, seize, or take for oneself before others. See Synonyms at appropriate.

2.
a.
 those in the US by
1 quarter, which in turn are expected to preempt rises in Europe and
Japan by 1-2 quarters. While the ECB,
Bank of England
 central bank and note-issuing institution of Great Britain. Popularly known as the Old Lady of Threadneedle Street, its main office stands on the street of that name in London.
,
Bank of Canada

 and Federal Reserve have left interest rates and unconventional measures
largely unchanged in recent months, the Bank of Japan introduced radical
loosening measures in the form of ‘quantitative and qualitative
monetary easing’ at the beginning of April. The slant, if not the
specifics, of the measures have been widely anticipated since Prime
Minister
Shinzo Abe
 
 was elected in December 2012, and can largely
explain the sharp depreciation of the yen since December. The
quantitative and qualitative easing measures aim to achieve 2 per cent
inflation in Japan in two years’ time. This is to be effected
through an expansion of the money base of 60-70
trillion

 yen per annum.
The Federal Reserve eased monetary policy aggressively in the final
quarter of 2012. In addition to announcing its intention to maintain
interest rates at an exceptionally low level until 2015, it continues to
purchase additional agency
mortgage-backed securities

 at the rate of $40
billion per month (QE3), whilst also purchasing longer-term Treasury
securities at a rate of $45 billion per month. In Australia, the
monetary policy board decided to lower the benchmark rate by 25 basis
points to 3 per cent in December to provide additional support to
demand, following a similar action by the
Bank of Korea

 in October 2012.
Interest rates in both countries have since remained unchanged.

After a modest
softening
 /sof·ten·ing/ () malacia.


softening

a change of consistency, with loss of firmness or hardness.
 of the monetary stance in several emerging
economies in the first half of last year, there has been a slight
reversal in the stance in Brazil. After ten consecutive interest rate
cuts since August 2011, bringing the target for the Brazilian main
policy rate to a record low of 7.25 per cent towards the end of 2012,
the central bank raised its target rate by 25 basis points in April.
Monetary policy in the other BRIC economies has remained more or less
stable, with a slight bias towards loosening targets on longer-term
maturities in Russia and India.

[FIGURE A1 OMITTED]

Figure A1 illustrates our projections for real long-term interest
rates in the US, Euro Area, Japan and Canada. Long real rates have
followed nominal rates in a sharp drop since the second quarter of 2011.
Announced policies indicate that the monetary stance should remain
highly expansionary until the end of 2015. Real interest rates in
North
America

 third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere.
 are expected to stabilise close to historical levels by 2017-18,
while they are expected to ‘normalise’ earlier in the Euro
Area, due to the high risk premium on borrowing in some Euro Area
economies. We see real interest rates in Japan
stabilising

 around a
level rather below international rates of return.

Figure A2 depicts the spread between 10-year government bond yields
of Spain, Italy, Portugal, Ireland and Greece over German yields,
regarded as a
safe haven

 in the Euro Area. Sovereign risks in the Euro
Area have been a major macroeconomic issue for the global economy and
financial markets over the past two years. The final agreement on the
Private Sector Involvement in the Greek default in February 2012 and the
Outright Money Transactions (
OMT

) introduced by the ECB in August 2012
brought some relief to bond yields in the vulnerable economies last
year. There was surprisingly little reaction to the Cyprus crisis or
even the delay to the Troika
disbursement

 to Greece scheduled from
March, although some upward pressure was observed in Italy related to
policy uncertainty in the wake of inconclusive elections in March. In
our forecast, we have assumed spreads remain at current levels until the
end of 2014, and start to recede in 2015.

[FIGURE A2 OMITTED]

[FIGURE A3 OMITTED]

Nominal exchange rates against the US dollar are assumed to remain
constant at the rate prevailing on 19 April 2013 until the end of
December 2013. After that, they follow a backward-looking
uncovered-interest
parity
 or  in physics, quantity that refers to the relationship between an object or process and the image that it can produce in a mirror.
 condition, based on interest rate
differentials relative to the US. Figure A3 illustrates the effective
exchange rate projections for the US, Euro Area, Japan, Canada and the
UK. The Japanese effective exchange rate has slumped by 20 per cent
since mid-2012, reflecting the significant easing of the policy stance
following elections last December. While sterling and the Canadian
dollar have also weakened less dramatically over this period, the euro
and US$ have strengthened in effective terms.

Our oil price assumptions for the short term are based on those of
the US Energy Information Administration, who use information from
forward markets as well as an evaluation of supply conditions. In the
longer term, we assume that real oil prices will rise in line with the
real interest rate. The oil price assumptions underlying our current
forecast are reported in figure A4 and in table 1 at the beginning of
this chapter. The price of
Brent crude

 dropped below $100 per barrel in
June 2012 for the first time in over a year, but has since recovered to
a level averaging about $112 per barrel in the first quarter of 2013. A
modest decline in this level is expected over the near term. Over the
medium term, oil price growth will be restrained in part by the rise in
new extraction methods for oil and gas, especially in the US.

Our equity price assumptions for the US reflect the
expected return

 on capital. Other equity markets are assumed to move in line with the US
market, but are adjusted for different exchange rate movements and
shifts in country-specific equity risk premia. Figure A5 illustrates the
key equity price assumptions underlying our current forecast. Global
share prices dropped sharply in mid-2011 in response to the
deepening
  
tr. & intr.v. deep·ened, deep·en·ing, deep·ens
To make or become deep or deeper.

Noun 1. deepening – a process of becoming deeper and more profound
 of
the Euro Area debt crisis and the downgrade of US government debt.
However, we have seen a sharp rebound in global share prices in recent
months. The most significant gains have been in Japan. At the end of
2012, Japanese equity markets had still recovered none of the losses
suffered at the height of the financial crisis, and stood about 45 per
cent below their average level in 2007. Since then share prices in Japan
have jumped by more than 30 per cent, with more modest rises of 5-10 per
cent observed in Europe and the US.

[FIGURE A4 OMITTED]

[FIGURE A5 OMITTED]

Fiscal policy assumptions for 2013-14 follow announced policies as
of 1 April 2013. Average personal sector tax rates and effective
corporate tax rate assumptions underlying the projections are reported
in table A3. Government revenue as a share of GDP reported in the table
reflects these tax rate assumptions and our forecast projections for
income and profits, as well as our projections for consumption tax
revenue. Consumption tax revenue depends on the
VAT

See value-added tax (VAT).
 rate. Our forecast
incorporates planned/enacted VAT rate rises in 2013-14 for Finland,
Italy and Japan.
Government spending

 in 2013 is expected to decline as a
share of GDP in eight out of eighteen countries reported in the table.
We expect the burden of government interest payments to rise in the
vulnerable Euro Area economies of Ireland, Spain, Greece, Portugal and
Italy, as well as in the UK. Recent policy announcements in Portugal,
Spain, Italy and elsewhere, suggest that the commitment to fiscal
austerity in Europe may be waning. This is supported by comments by
international organisations such as the
IMF

See International Monetary Fund (IMF).
, which have supported the
move to a looser fiscal stance in some countries. A policy loosening
relative to our current assumptions poses an
upside

 risk to the
short-term outlook in Europe.

Table A1. Interest rates Per cent per annum

                     Central bank intervention rates

                US     Canada    Japan    Euro Area     UK

2010           0.25     0.59      0.10       1.00      0.50
2011           0.25     1.00      0.10       1.25      0.50
2012           0.25     1.00      0.10       0.88      0.50
2013           0.25     1.00      0.10       0.75      0.50
2014           0.25     1.06      0.10       0.75      0.50
2015           0.98     1.69      0.14       0.89      0.65
2016-2020      2.79     3.18      0.73       2.06      1.91
2012     Q1    0.25     1.00      0.10       1.00      0.50
2012     Q2    0.25     1.00      0.10       1.00      0.50
2012     Q3    0.25     1.00      0.10       0.78      0.50
2012     Q4    0.25     1.00      0.10       0.75      0.50
2013     Q1    0.25     1.00      0.10       0.75      0.50
2013     Q2    0.25     1.00      0.10       0.75      0.50
2013     Q3    0.25     1.00      0.10       0.75      0.50
2013     Q4    0.25     1.00      0.10       0.75      0.50
2014     Q1    0.25     1.00      0.10       0.75      0.50
2014     Q2    0.25     1.00      0.10       0.75      0.50
2014     Q3    0.25     1.00      0.10       0.75      0.50
2014     Q4    0.25     1.25      0.10       0.75      0.50
2015     Q1    0.54     1.50      0.10       0.75      0.50
2015     Q2    0.83     1.63      0.10       0.85      0.60
2015     Q3    1.12     1.75      0.15       0.94      0.71
2015     Q4    1.41     1.88      0.20       1.04      0.81

                     10-year government bond yields

                US    Canada    Japan    Euro Area     UK

2010           3.2      3.2      1.2        3.3       3.6
2011           2.8      2.8      1.1        3.9       3.1
2012           1.8      1.9      0.8        3.2       1.8
2013           1.9      2.0      0.6        2.7       1.9
2014           2.5      2.6      0.8        3.2       2.2
2015           3.0      3.1      1.0        3.5       2.6
2016-2020      3.9      3.9      1.7        3.9       3.5
2012     Q1    2.0      2.0      1.0        3.5       2.1
2012     Q2    1.8      1.9      0.9        3.4       1.8
2012     Q3    1.6      1.8      0.8        3.2       1.7
2012     Q4    1.7      1.8      0.7        2.8       1.8
2013     Q1    1.9      1.9      0.7        2.7       2.0
2013     Q2    1.8      1.8      0.6        2.5       1.7
2013     Q3    1.9      2.0      0.6        2.6       1.8
2013     Q4    2.1      2.2      0.7        2.8       1.9
2014     Q1    2.3      2.3      0.7        3.0       2.0
2014     Q2    2.4      2.5      0.8        3.1       2.1
2014     Q3    2.5      2.6      0.8        3.2       2.2
2014     Q4    2.7      2.8      0.9        3.4       2.3
2015     Q1    2.8      2.9      0.9        3.4       2.4
2015     Q2    3.0      3.0      1.0        3.5       2.5
2015     Q3    3.1      3.2      1.1        3.5       2.6
2015     Q4    3.2      3.3      1.1        3.5       2.7

Table A2. Nominal exchange rates

              Percentage change in effective rate

                US     Canada   Japan   Euro
                                        Area

2010           -3.1      9.5     4.6    -6.1
2011           -3.0      2.1     7.2     2.3
2012            3.5      0.9     2.4    -3.5
2013            1.3     -1.4   -16.9     2.6
2014            0.6     -0.5    -1.8     0.0
2015            0.7     -0.6    -0.4     0.4
2012    Q1     -0.4      3.2    -2.3    -2.8
2012    Q2      2.0     -2.8    -0.1    -1.2
2012    Q3     -0.4      5.1     2.5    -1.8
2012    Q4     -0.8     -1.5    -4.3     2.4
2013    Q1      1.0     -1.5   -12.1     2.3
2013    Q2      0.9     -0.7    -4.6    -0.4
2013    Q3     -0.1      0.0    -0.1    -0.1
2013    Q4     -0.1      0.0    -0.1    -0.1
2014    Q1      0.2     -0.1    -0.2     0.1
2014    Q2      0.2     -0.1    -0.2     0.1
2014    Q3      0.2     -0.1    -0.1     0.1
2014    Q4      0.2     -0.1    -0.1     0.1
2015    Q1      0.2     -0.2    -0.1     0.1
2015    Q2      0.2     -0.2    -0.1     0.1
2015    Q3      0.1     -0.2     0.0     0.1
2015    Q4      0.1     -0.1     0.0     0.2

               Percentage change in effective rate

               Germany   France   Italy     UK

2010             -3.6     -2.8     -3.3    -0.2
2011              0.7      1.1      1.4     0.0
2012             -1.9     -1.9     -1.7     4.4
2013              1.3      1.3      1.4    -3.5
2014              0.0      0.0      0.1     0.1
2015              0.2      0.2      0.4     0.5
2012    Q1       -1.5     -1.2     -1.4     1.3
2012    Q2       -0.5     -0.6     -0.5     2.5
2012    Q3       -1.0     -0.9     -0.7     1.2
2012    Q4        1.2      1.2      1.3    -0.5
2013    Q1        1.2      1.2      1.2    -4.0
2013    Q2       -0.2     -0.2     -0.2    -0.4
2013    Q3        0.0      0.0      0.0     0.0
2013    Q4        0.0      0.0      0.0     0.0
2014    Q1        0.0      0.0      0.1     0.1
2014    Q2        0.0      0.0      0.1     0.1
2014    Q3        0.0      0.0      0.1     0.1
2014    Q4        0.0      0.0      0.1     0.1
2015    Q1        0.0      0.1      0.1     0.1
2015    Q2        0.1      0.1      0.1     0.1
2015    Q3        0.1      0.1      0.1     0.2
2015    Q4        0.1      0.1      0.1     0.2

                      Bilateral rate per US $

               Canadian    Yen     Euro    Sterling
                  $

2010             1.026    87.8    0.755       0.647
2011             0.995    79.8    0.719       0.624
2012             0.997    79.8    0.778       0.631
2013             1.016    96.0    0.766       0.652
2014             1.023    97.9    0.771       0.656
2015             1.032    98.7    0.774       0.656
2012    Q1       0.994    79.3    0.763       0.636
2012    Q2       1.027    80.1    0.780       0.632
2012    Q3       0.979    78.6    0.799       0.633
2012    Q4       0.990    81.2    0.771       0.623
2013    Q1       1.008    92.3    0.758       0.645
2013    Q2       1.018    97.2    0.769       0.655
2013    Q3       1.018    97.2    0.769       0.655
2013    Q4       1.018    97.2    0.769       0.655
2014    Q1       1.020    97.5    0.770       0.655
2014    Q2       1.022    97.8    0.771       0.656
2014    Q3       1.024    98.0    0.771       0.656
2014    Q4       1.026    98.3    0.772       0.656
2015    Q1       1.028    98.5    0.773       0.657
2015    Q2       1.031    98.7    0.774       0.657
2015    Q3       1.033    98.8    0.774       0.656
2015    Q4       1.034    98.9    0.774       0.656

Table A3. Government revenue assumptions

               Average income tax rate   Effective corporate
                    (per cent) (a)       tax rate (per cent)

               2012    2013    2014    2012    2013    2014

Australia      14.5    14.4    14.4    25.7    25.7    25.7
Austria        31.5    31.5    31.5    19.9    19.9    19.9
Belgium        33.9    34.3    34.5    16.7    16.7    16.7
Canada         21.6    21.8    21.5    19.6    19.5    20.3
Denmark        38.0    38.0    37.8    18.1    18.1    18.1
Finland        31.7    31.9    32.1    22.5    22.4    22.6
France         29.7    29.8    29.8    17.6    23.6    23.6
Germany        27.9    27.7    27.6    16.8    16.8    16.8
Greece         17.6    17.4    16.7    13.5    13.5    13.5
Ireland        25.1    25.7    24.8    9.8     9.8     9.8
Italy          28.4    28.4    28.4    26.4    26.4    26.4
Japan          22.8    23.0    23.8    29.2    29.4    29.6
Netherlands    32.8    32.8    32.8    8.1     8.3     8.4
Portugal       21.0    21.3    21.2    18.6    18.6    18.6
Spain          25.5    25.7    26.7    25.2    25.2    25.2
Sweden         29.9    29.9    29.6    30.4    30.4    30.4
UK             23.0    23.2    23.5    17.6    16.3    14.6
US             17.3    18.2    18.3    28.4    28.6    28.8

                    Gov't revenue
                   (% of GDP) (b)

               2012    2013    2014

Australia      31.8    33.9    34.5
Austria        38.9    38.4    37.6
Belgium        43.6    44.3    44.4
Canada         35.1    35.0    34.9
Denmark        46.6    48.4    48.8
Finland        45.0    44.8    44.4
France         45.7    46.6    46.8
Germany        45.6    46.5    46.9
Greece         47.6    50.4    49.9
Ireland        29.9    29.2    30.2
Italy          45.2    45.7    45.7
Japan          31.7    31.2    32.3
Netherlands    42.0    42.8    42.9
Portugal       38.0    38.8    38.6
Spain          32.6    35.6    35.5
Sweden         44.9    44.8    44.2
UK             37.2    38.7    38.3
US             27.5    28.5    28.9

Notes: (a) The average income tax rate is calculated as total income
tax plus both employee and employer social security contributions
as a share of  personal income. (b) Revenue shares reflect NiGEM
aggregates, which may differ from official government figures.

Table A4. Government spending assumptions (a)

               Gov't spending excluding
                  interest payments

                 2012    2013    2014

Australia        33.2    33.6    33.6
Austria          38.9    38.2    37.1
Belgium          43.8    44.0    44.0
Canada           34.9    34.5    33.9
Denmark          48.7    49.6    49.2
Finland          45.4    45.3    44.4
France           47.8    47.9    47.6
Germany          43.8    44.4    44.6
Greece           47.1    48.2    47.0
Ireland          33.2    31.6    30.2
Italy            42.7    42.8    42.1
Japan            39.5    40.0    39.4
Netherlands      44.0    44.4    43.9
Portugal         38.5    38.1    37.3
Spain            39.8    38.9    38.0
Sweden           44.7    45.1    44.2
UK               39.9    39.7    38.9
US               33.4    32.7    32.3

               Gov't interest payments     Deficit
                     (% of GDP)          projected to
                                          fall below
                                             3%
                2012    2013    2014      of GDP(b)

Australia       1.7     1.7     1.6         2013
Austria         2.5     2.4     2.2         2011
Belgium         3.5     3.3     3.0         2013
Canada          3.4     3.2     2.9         2013
Denmark         1.8     1.7     1.6         2013
Finland         1.4     1.2     I.0         -
France          2.7     2.7     2.5         2016
Germany         2.0     1.7     1.5         2011
Greece          7.4     7.8     8.0         2017
Ireland         4.1     4.6     4.7         2019
Italy           5.3     5.7     5.7         2012
Japan           2.0     1.8     1.6         -
Netherlands     2.0     1.9     1.8         2014
Portugal        4.4     4.8     4.8         2015
Spain           3.1     3.8     4.2         2018
Sweden          I.I     I.0     0.9         -
UK              3.0     3.2     3.2         2017
US              2.8     2.7     2.6              -

Notes: (a) Expenditure shares reflect NiGEM aggregates, which may
differ from official government figures. (b) The deficit in Finland
and Sweden has not exceeded 3 per cent of GDP in recent history.
In Japan and the US, deficits are not expected to fall below
3 per cent of GDP within our forecast horizon.

Appendix B: Forecast detail

[FIGURE B1 OMITTED]

[FIGURE B2 OMITTED]

[FIGURE B3 OMITTED]

[FIGURE B4 OMITTED]

Table B1. Real GDP growth and inflation

                              Real GDP growth (percent)

                   2010    2011    2012    2013    2014    2015-19

Australia          2.6     2.4     3.6     2.7     2.9       3.7
Austria (a)        2.2     2.7     0.8       1     1.6       2.5
Belgium (a)        2.4     1.8    -0.2     0.5       1       2.7
Bulgaria (a)       0.5     1.9     0.7     1.3     3.0       3.1
Brazil             7.5     2.7     0.9     3.2     3.4       4.5
China             10.4     9.3     7.7     7.8     7.4       7.0
Canada             3.2     2.6     1.8     1.6     2.4       2.9
Czech Rep.         2.3     1.9    -1.2    -0.1     1.9       3.6
Denmark (a)        1.6     1.1    -0.5       1     1.5       2.6
Estonia (a)        3.3     8.3     3.2     3.4     4.3       2.2
Finland (a)        3.3     2.8    -0.2     0.1     2.5       2.5
France (a)         1.6     1.7     0.0    -0.2     0.5       1.7
Germany (a)        4.0     3.1     0.9     0.5     1.3       1.3
Greece (a)        -4.9    -7.1    -6.4    -5.5     0.1       1.8
Hong Kong          6.8     4.9     1.4     3.8     4.2       3.4
Hungary (a)        1.3     1.6    -1.8     0.0     1.5       4.3
India             11.4     7.5     4.1     5.3     6.5       7.0
Ireland (a)       -0.8     1.4     0.9     0.7     2.2       3.2
Italy (a)          1.7     0.5    -2.4    -1.3     0.3       2.3
Japan              4.7    -0.5     2.0     2.0     2.0       1.3
Lithuania (a       1.5     5.9     3.5     2.4     4.0       3.4
Latvia (a)        -1.4     5.2     5.4     3.9     5.3       3.4
Mexico             5.3     3.9     3.9     2.9     3.2       3.5
Netherlands (a)    1.6     1.1      -1    -0.4     0.9       2.2
New Zealand        0.9     1.3     3.0     2.7     2.7       2.6
Norway             0.2     1.3     3.0     2.1     2.8       2.4
Poland (a)         3.9     4.3     2.2     1.4     2.9       4.0
Portugal (a)       1.9    -1.6    -3.2    -2.7     0.7       2.5
Romania (a)       -1.2     2.2     0.7     1.7     2.8       3.4
Russia             4.4     4.3     3.6     2.9     2.9       3.9
South Africa       3.1     3.5     2.5     3.0     3.2       3.5
S. Korea           6.3     3.7     2.0     2.6     3.5       3.9
Slovakia (a)       4.4     3.2     2.0     1.3     3.2       2.9
Slovenia (a)       1.1       1    -2.2      -1     1.3       1.6
Spain (a)         -0.3     0.4    -1.4    -1.8     0.2       2.6
Sweden (a)         6.3     3.8     1.2     1.3     2.0       2.3
Switzerland        3.0     1.9       1     1.5     2.2       2.2
Taiwan            10.8     4.1     1.3     3.5     3.9       3.4
UK (a)             1.8       1     0.3     0.9     1.5       2.3
US                 2.4     1.8     2.2     2.2     2.3       2.9
Euro Area (a)      1.9     1.5    -0.5    -0.4     0.9       1.9
EU-27 (a)          2.0     1.6    -0.3     0.1     1.1       2.1
OECD               3.0     1.9     1.4     1.4     2.0       2.6
World              5.1     3.8     3.1     3.3     3.7       4.2

                            Annual inflation(a) (per cent)

                   2010    2011    2012    2013    2014    2015-19

Australia          2.5     2.4     2.2     2.2     2.2       2.8
Austria (a)        1.7     3.6     2.6     2.4     1.7       2.1
Belgium (a)        2.3     3.4     2.6     1.6     1.6       2.0
Bulgaria (a        3.0     3.4     2.4     2.9     2.2       3.0
Brazil             5.1     6.6     5.4     5.6     4.8       4.7
China              3.3     5.4     2.7     2.3     2.9       2.2
Canada             1.4     2.1     1.3     1.6     2.4       1.9
Czech Rep.         1.2     2.1     3.5     2.1     1.8       1.8
Denmark (a         2.2     2.7     2.4     1.3     1.7       1.7
Estonia (a)        2.7     5.1     4.2     3.4     2.7       4.9
Finland (a)        1.7     3.3     3.2     2.5     2.0       2.4
France (a)         1.7     2.3     2.2     1.7     1.9       1.5
Germany (a         1.2     2.5     2.1     1.9     1.6       1.5
Greece (a)         4.7     3.1     1.0    -0.1     0.2       1.6
Hong Kong          1.4     3.7     2.8     3.0     2.7       2.7
Hungary (a)        4.7     3.9     5.7     3.4     3.1       2.5
India             12.0     8.8     9.4     8.9     5.4       4.5
Ireland (a)       -1.6     1.2     1.9     1.2     1.4       1.8
Italy (a)          1.6     2.9     3.3     2.1     1.7       2.5
Japan             -1.7    -0.8    -0.6    -0.1     1.3       0.9
Lithuania (a)      1.2     4.1     3.2     1.9     2.6       4.7
Latvia (a)        -1.2     4.2     2.3     0.4     3.0       4.9
Mexico             4.2     3.4     4.1     4.2     4.1       3.1
Netherlands (a)    0.9     2.5     2.8     2.8     1.6       2.6
New Zealand        1.6     3.0     1.1     1.2     2.7       3.0
Norway             2.3     1.3     0.9     2.0     2.4       2.8
Poland (a)         2.7     3.9     3.7     2.0     2.2       2.3
Portugal (a)       1.4     3.6     2.8     1.3     1.5       1.9
Romania (a)        6.1     5.8     3.4     4.1     2.5       3.4
Russia             6.9     8.4     5.1     5.1     5.1       5.3
South Africa       3.9     5.0     5.7     4.9     3.9       4.4
S. Korea           2.9     4.0     2.2     2.4     2.7       2.9
Slovakia (a)       0.7     4.1     3.7     2.6     2.9       3.5
Slovenia (a)       2.1     2.1     2.8     2.5     2.8       3.0
Spain (a)          2.0     3.1     2.4     1.8     1.4       1.5
Sweden (a)         1.9     1.4     0.9     0.9     1.3       2.0
Switzerland        0.9     0.1    -0.5     0.5     1.3       2.5
Taiwan             0.7     0.8     1.3     1.8     1.7       2.4
UK (a)             3.3     4.5     2.8     2.9     2.3       2.0
US                 1.9     2.4     1.8     1.4     1.7       2.5
Euro Area (a)      1.6     2.7     2.5     1.9     1.6       1.9
EU-27 (a)          2.1     3.1     2.6     2.1     1.8       2.0
OECD               1.7     2.3     1.8     1.7     1.8       2.2
World              4.1     5.2     4.2     3.6     3.1       3.0

Notes: (a) Harmonised consumer price inflation in the EU economies
and inflation measured by the consumer expenditure deflator in
the rest of the world.

Table B2. Fiscal balance and government debt

                       Fiscal balance (percent of GDP)(a)

                   2010    2011    2012    2013    2014    2019

Australia          -4.7    -4.0    -3.1    -1.4    -0.7    -0.9
Austria (a)        -4.5    -2.5    -2.5    -2.2    -1.7    -1.4
Belgium (a)        -3.9    -3.9    -3.7    -2.9    -2.7    -1.6
Bulgaria           -3.1    -2.0    -1.5    -0.5    -0.4    -1.0
Canada             -5.2    -4.0    -3.2    -2.7    -1.9    -1.6
Czech Rep.         -4.8    -3.3    -4.7    -3.3    -3.2    -2.6
Denmark (a)        -2.5    -1.8    -3.9    -2.9    -2.0    -1.3
Estonia             0.2     1.1    -1.0    -0.8    -0.2    -1.2
Finland (a)        -2.8    -0.9    -1.8    -1.7    -1.0    -1.4
France (a)         -7.1    -5.2    -4.8    -4.0    -3.4    -2.0
Germany (a)        -4.1    -0.8    -0.3     0.3     0.9     0.5
Greece (a)        -10.8    -9.5    -6.8    -5.7    -5.2    -1.9
Hungary            -4.5     4.2    -2.6    -2.3    -1.6    -0.8
Ireland (a, c)    -30.9   -13.3    -7.5    -6.9    -4.7    -2.6
Italy (a)          -4.5    -3.9    -2.9    -2.7    -2.1    -0.7
Japan              -8.4    -9.2    -9.9   -10.6    -8.7    -5.5
Lithuania          -7.2    -5.5    -3.5    -2.8    -2.3    -1.5
Latvia             -8.1    -3.4    -1.8    -1.5    -1.7    -1.1
Netherlands (a)    -5.0    -4.4    -4.0    -3.5    -2.8    -1.9
Poland             -7.9    -5.0    -3.5    -3.6    -2.6    -1.2
Portugal (a)       -9.8    -4.4    -4.9    -4.1    -3.5    -1.0
Romania            -6.8    -5.5    -3.2    -2.1    -2.0    -1.7
Slovakia           -7.7    -4.9    -4.4    -3.2    -1.9     0.0
Slovenia           -5.7    -6.4    -5.6    -4.6    -3.7    -0.7
Spain (a)          -9.4    -8.6   -10.3    -7.0    -6.8    -2.1
Sweden (a)          0.3     0.4    -0.8    -1.3    -0.9    -1.0
UK (a)            -10.2    -7.8    -6.3    -6.8    -6.2    -0.9
US                -11.4   -10.2    -8.7    -6.9    -5.9    -3.4

                  Government debt (percent of GDP, end year) (b)

                   2010    2011    2012    2013    2014    2019

Australia          22.8    26.2    28.7    28.7    28.1    23.6
Austria (a)        71.7    72.2    73.5    73.0    71.1    60.7
Belgium (a)        95.5    97.8   102.1   102.1   102.2    88.9
Bulgaria             -       -       -       -       -       -
Canada             81.3    81.7    84.6    83.4    81.5    71.7
Czech Rep.         37.8    40.8    46.3    49.6    51.7    50.9
Denmark (a)        42.7    46.4    48.4    50.9    52.3    50.5
Estonia              -       -       -       -       -       -
Finland (a)        48.7    49.1    51.5    51.6    49.8    43.3
France (a)         82.4    86.0    90.8    93.1    94.1    91.6
Germany (a)        82.5    80.5    81.4    79.6    76.2    60.0
Greece (a)        148.3   170.5   157.6   170.7   174.9   161.7
Hungary            81.8    81.4    79.1    72.3    69.6    52.2
Ireland (a, c)     92.1   106.4   118.3   123.3   122.0   113.0
Italy(a)          119.3   120.6   128.1   130.1   129.6   104.0
Japan             192.9   203.1   214.9   213.2   214.4   216.5
Lithuania            -       -       -       -       -       -
Latvia               -       -       -       -       -       -
Netherlands (a)    63.2    65.4    71.0    73.6    74.5    67.8
Poland             54.8    56.4    56.2    56.5    56.9    46.8
Portugal (a)       93.5   108.1   122.6   127.2   127.2   109.6
Romania              -       -       -       -       -       -
Slovakia             -       -       -       -       -       -
Slovenia             -       -       -       -       -       -
Spain (a)          61.5    69.3    80.7    90.6    98.3    97.1
Sweden (a)         39.5    38.4    37.6    38.1    37.3    34.4
UK (a)             79.4    85.5    90.0    93.3    96.3    88.6
US                 96.2   100.5   108.6   110.6   111.9   102.3

Notes: (a) General government financial balance; Maastricht definition
for EU countries. (b) Maastricht definition for EU countries.
(c) The deficit for Ireland in 2010 includes outlay on bank
recapitalisation amounting to 20 per cent of GDP. The outlays are in
the form of promissory notes and do not require upfront financing.

Table B3. Unemployment and current account balance

                       Standardised unemployment rate

               2010    2011    2012    2013    2014    2015-19

Australia        5.2     5.1     5.2     5.1     5.5       4.8
Austria          4.4     4.2     4.4     4.7     4.5       4.0
Belgium          8.2     7.2     7.6     7.8     7.8       6.9
Bulgaria        10.3    11.3    12.3    11.3    10.2       9.8
Canada           8.0     7.5     7.3     7.2     7.2       6.5
China             -       -       -       -       -         -
Czech Rep.       7.3     6.7     7.0     7.2     7.6       7.3
Denmark          7.4     7.6     7.5     7.2     7.1       6.3
Estonia         16.9    12.5    10.1     9.7     9.4       9.4
Finland          8.4     7.8     7.7     8.1     7.7       7.1
France           9.7     9.6    10.3    10.9    10.7       9.6
Germany          7.1     5.9     5.5     5.2     5.0       5.1
Greece          12.6    17.7    24.4    27.2    28.2      26.0
Hungary         11.2   II.0     10.9    10.4     9.2       7.7
Ireland         13.9    14.7    14.7    14.3    12.5      10.8
Italy            8.4     8.4    10.6    11.8    11.6       9.9
Japan            5.1     4.6     4.3     4.3     4.4       4.6
Lithuania       18.0    15.3    13.3    12.9    12.3      12.2
Latvia          19.8    16.4    14.8    13.9    13.1      12.0
Netherlands      4.5     4.4     5.3     6.2     5.5       4.6
Poland           9.6     9.7    10.1    10.6    10.5       7.5
Portugal        12.0    12.9    15.9    17.7    18.2      15.6
Romania          7.3     7.4     7.0     6.2     6.3       6.0
Slovakia        14.5    13.6    14.0    13.7    12.3      11.8
Slovenia         7.3     8.2     8.9     8.5     7.9       7.8
Spain           20.1    21.7    25.0    26.9    26.0      18.4
Sweden           8.6     7.8     8.0     7.8     6.7       7.6
UK               7.9     8.1     7.9     8.1     8.2       7.0
US               9.6     8.9     8.1     7.3     6.7       6.0

                     Current account balance (percent of GDP)

               2010    2011    2012    2013    2014    2015-19

Australia       -2.9    -2.3    -3.4    -4.7    -3.7      -2.3
Austria          3.5     0.5     1.8     0.6     1.4       1.9
Belgium          1.9    -1.4    -1.2    -1.3    -2.0      -1.2
Bulgaria        -1.6     0.4    -4.2    -1.3    -2.5      -3.7
Canada          -3.6    -3.0    -3.7    -3.1    -3.1      -2.4
China            4.5     3.1     3.7     5.0     6.0       4.4
Czech Rep.      -3.8    -2.8    -2.8    -5.5    -6.7      -8.3
Denmark          5.9     5.6     5.2     6.5     5.5       5.4
Estonia          3.0     2.2    -1.3    -1.8    -3.6      -8.1
Finland          2.4    -0.7    -1.6    -0.2    -1.0      -2.5
France          -1.6    -2.0    -2.2    -1.4    -0.9      -0.9
Germany          6.1     6.2     7.1     7.4     7.8       5.6
Greece         -10.1    -9.9    -3.3    -2.1    -1.7      -1.8
Hungary          1.1     0.9     0.3     1.6     3.3       4.8
Ireland          1.2     1.1     4.0     3.7     0.6      -4.4
Italy           -3.5    -3.1    -0.8    -0.4    -0.8       0.3
Japan            3.7     2.0    I.0      1.6     2.0       3.6
Lithuania        0.1    -1.5    -0.1     5.1     4.9      -1.2
Latvia           3.3    -2.4    -1.9    -1.9    -2.8      -4.7
Netherlands      7.7     9.7     9.5     7.9     6.8       3.6
Poland          -4.7    -4.3    -3.1     1.8     2.9       0.3
Portugal       -10.6    -7.0    -1.8    -0.8     0.1       1.6
Romania         -6.2    -6.3    -4.5    -3.4    -5.6     -11.2
Slovakia        -3.1     0.0     3.0     2.6     2.5      -1.9
Slovenia        -0.6     0.0     2.3     3.2     1.5       2.1
Spain           -4.5    -3.5    -1.7    -0.4     0.2       1.3
Sweden           7.1     7.7     8.0     7.4     7.4       6.6
UK              -2.5    -1.3    -3.7    -2.6    -2.3      -2.5
US              -3.0    -3.1    -3.0    -2.6    -2.6      -3.1

Table B4. United States
Percentage change

                                      2009    2010    2011    2012

GDP                                   -3.1     2.4     1.8     2.2

Consumption                           -1.9     1.8     2.5     1.9
Investment : housing                 -22.4    -3.7    -1.4    12.1
business                             -18.1     0.7     8.6     8.0
Government: consumption                4.3     0.9    -2.3    -1.3
investment                             0.6    -0.6    -7.2    -4.0
Stockbuilding (a)                     -0.8     1.5    -0.2     0.1
Total domestic demand                 -4.2     2.8     1.8     2.1

Export volumes                        -9.1    11.1     6.7     3.4
Import volumes                       -13.5    12.5     4.8     2.4

Average earnings                       2.6     2.0     2.2     1.2
Private consumption deflator           0.1     1.9     2.4     1.8
RPDI                                  -2.6     2.2     1.6     1.5
Unemployment, %                        9.3     9.6     8.9     8.1

General Govt. balance as % of GDP    -11.9   -11.4   -10.2    -8.7
General Govt. debt as % of GDP (b)    87.8    96.2   100.5   108.6

Current account as % of GDP           -2.7    -3.0    -3.1    -3.0

                                                      Average
                                      2013    2014    2015-19

GDP                                    2.2     2.3        2.9

Consumption                            2.2     2.0        2.3
Investment : housing                   7.9     5.4        7.6
business                               6.5     5.8        6.6
Government: consumption               -0.9     0.9        1.9
investment                             0.7     1.7        2.3
Stockbuilding (a)                     -0.2     0.1        0.0
Total domestic demand                  2.1     2.5        2.9

Export volumes                         3.6     4.8        6.1
Import volumes                         2.4     5.7        5.9

Average earnings                       2.1     2.7        3.9
Private consumption deflator           1.4     1.7        2.5
RPDI                                   1.7     2.6        2.4
Unemployment, %                        7.3     6.7        6.0

General Govt. balance as % of GDP     -6.9    -5.9       -4.2
General Govt. debt as % of GDP (b)   110.6   111.9      107.4

Current account as % of GDP           -2.6    -2.6       -3.1

Note: (a) Change as a percentage of GDP. (b) End-of-year basis.

Table B5. Canada
Percentage change

                                2009    2010    2011    2012

GDP                             -2.8     3.2     2.6     1.8

Consumption                      0.2     3.4     2.4     1.9
Investment :housing             -6.4     7.9     1.9     5.8
           :business           -19.5    14.4    10.4     6.0
Government: consumption          3.4     3.0     1.0     0.4
           :investment           8.7     9.3    -3.3    -5.6
Stockbuilding (a)               -0.9     0.4     0.1     0.2
Total domestic demand           -2.3     5.2     2.8     2.2

Export volumes                 -12.8     6.5     4.6     1.6
Import volumes                 -12.4    13.6     5.8     2.9

Average earnings                 2.1     1.6     2.9     2.7
Private consumption deflator     0.4     1.4     2.1     1.3
RPDI                             0.7     2.1     1.5     2.1
Unemployment, %                  8.3     8.0     7.5     7.3

General Govt. balance           -4.8    -5.2    -4.0    -3.2
  as % of GDP
General Govt. debt as           79.5    81.3    81.7    84.6
  % of GDP (b)
Current account as % of GDP     -3.0    -3.6    -3.0    -3.7

                                               Average
                                2013    2014   2015-19

GDP                              1.6     2.4        2.9

Consumption                      2.3     2.2        2.2
Investment :housing              3.6     5.8        5.3
           :business             3.3     4.0        3.3
Government: consumption          0.0     0.0        2.5
           :investment          -0.1     0.0        2.0
Stockbuilding (a)               -0.2     0.0        0.0
Total domestic demand            1.8     2.1        2.6

Export volumes                   1.7     5.5        6.1
Import volumes                   2.1     4.1        4.9

Average earnings                 2.2     3.6        3.8
Private consumption deflator     1.6     2.4        1.9
RPDI                             1.7     2.1        2.6
Unemployment, %                  7.2     7.2        6.5

General Govt. balance           -2.7    -1.9       -1.7
  as % of GDP
General Govt. debt as           83.4    81.5       75.2
  % of GDP (b)
Current account as % of GDP     -3.1    -3.1       -2.4

Note: (a) Change as a percentage of GDP. (b) End-of-year basis.

Table B6. Japan
Percentage change

                                 2009     2010     2011     2012

GDP                              -5.5      4.7     -0.5      2.0

Consumption                      -0.7      2.8      0.5      2.4
Investment :housing             -16.3     -4.8      5.5      2.9
           :business            -14.2      0.7      3.3      2.0
Government :consumption           2.3      1.9      1.4      2.7
           :investment            7.8      0.1     -6.9     12.5
Stockbuilding (a)                -1.5      0.9     -0.4      0.0
Total domestic demand            -3.8      2.9      0.4      2.8

Export volumes                  -24.4     24.5     -0.4     -0.2
Import volumes                  -15.8     11.1      5.9      5.3

Average earnings                 -0.4     -1.3      0.8     -1.6
Private consumption deflator     -2.4     -1.7     -0.8     -0.6
RPDI                              1.4      2.1      0.7      0.9
Unemployment, %                   5.1      5.1      4.6      4.3

Govt. balance as % of GDP        -8.8     -8.4     -9.2     -9.9
Govt. debt as % of GDP9BO       187.5    192.9    203.1    214.9

Current account as % of GDP       2.9      3.7      2.0      1.0

                                                 Average
                                 2013     2014   2015-19

GDP                               2.0      2.0       1.3

Consumption                       1.3      1.1       0.3
Investment :housing               3.9      3.6       3.2
           :business              1.8      5.6       4.1
Government :consumption           3.3      0.5       0.1
           :investment           10.1      1.2       0.1
Stockbuilding (a)                 0.2      0.2       0.0
Total domestic demand             2.5      1.8       0.9

Export volumes                    1.2      6.7       6.8
Import volumes                    5.0      5.8       4.7

Average earnings                 -0.5      0.5       1.1
Private consumption deflator     -0.1      1.3       0.9
RPDI                              0.9     -0.7       0.3
Unemployment, %                   4.3      4.4       4.6

Govt. balance as % of GDP       -10.6     -8.7      -6.2
Govt. debt as % of GDP9BO       213.2    214.4     218.2

Current account as % of GDP       1.6      2.0       3.6

Note: (a) Change as a percentage of GDP. (b) End-of-year basis.

Table B7. Euro Area
Percentage change

                                2009     2010     2011     2012

GDP                             -4.3      1.9      1.5     -0.5

Consumption                     -0.9      1.0      0.1     -1.3
Private investment             -14.5      0.3      2.1     -4.3
Government :consumption          2.6      0.8     -0.2     -0.3
           :investment           0.9     -3.7     -2.3     -4.1
Stockbuilding (a)               -0.9      0.7      0.2     -0.4
Total domestic demand           -3.7      1.4      0.5     -2.1

Export volumes                 -12.4     11.0      6.4      2.9
Import volumes                 -11.0      9.5      4.3     -0.8

Average earnings                 3.1      1.0      1.8      1.3
Harmonised consumer prices       0.3      1.6      2.7      2.5
RPDI                             0.0     -0.6     -0.7     -1.0
Unemployment, %                  9.6     10.1     10.1     11.4

Govt. balance as % of GDP       -6.3     -6.2     -4.1     -3.7
Govt. debt as % of GDP (b)      80.0     85.4     87.3     93.1

Current account as % of GDP     -0.2      0.0      0.1      1.2

                                                 Average
                                2013     2014    2015-19

GDP                             -0.4      0.9        1.9

Consumption                     -1.0      0.1        1.0
Private investment              -2.3      1.6        5.6
Government :consumption         -0.4     -0.2        1.1
           :investment          -2.1      0.2        1.7
Stockbuilding (a)               -0.2      0.1        0.1
Total domestic demand           -1.3      0.4        2.0

Export volumes                   2.9      4.1        6.1
Import volumes                   1.0      3.6        6.6

Average earnings                 0.8      0.6        2.2
Harmonised consumer prices       1.9      1.6        1.9
RPDI                            -1.4     -0.2        1.6
Unemployment, %                 12.1     11.8       10.0

Govt. balance as % of GDP       -2.8     -2.2       -1.2
Govt. debt as % of GDP (b)      94.3     94.0       87.8

Current account as % of GDP      2.3      2.4        1.6

Note: (a) Change as a percentage of GDP. (b) End-of-year basis;
Maastricht definition.

Table B8. Germany
Percentage change

                                 2009     2010     2011     2012

GDP                              -5.1      4.0      3.1      0.9

Consumption                       0.3      0.8      1.7      0.6
Investment : housing             -2.5      4.4      6.5      1.5
           : business           -17.2      6.9      7.3     -2.4
Government : consumption          3.0      1.7      1.0      1.4
           : investment           5.7      0.3     -0.2     -9.5
Stockbuilding (a)                -0.9      0.7      0.3     -0.6
Total domestic demand            -2.4      2.6      2.7     -0.4

Export volumes                  -12.8     13.4      7.9      4.3
Import volumes                   -8.0     10.9      7.5      2.2

Average earnings                  2.9      0.8      3.0      3.0
Harmonised consumer prices        0.2      1.2      2.5      2.1
RPDI                             -0.5      0.9      1.2      1.3
Unemployment, %                   7.8      7.1      5.9      5.5

Govt. balance as % of GDP        -3.1     -4.1     -0.8     -0.3
Govt. debt as % of GDP (b)       74.4     82.5     80.5     81.4

Current account as % of GDP       5.9      6.1      6.2      7.1

                                                 Average
                                 2013     2014   2015-19

GDP                               0.5      1.3        1.3

Consumption                       0.6      0.8        2.0
Investment : housing              1.0      5.0        7.8
           : business            -2.1      2.8        2.8
Government : consumption          1.5      1.1        0.9
           : investment           1.0      1.2        1.2
Stockbuilding (a)                 0.0      0.0        0.1
Total domestic demand             0.5      1.3        2.3

Export volumes                    3.0      3.7        5.9
Import volumes                    3.2      4.0        8.2

Average earnings                  2.5      1.3        2.6
Harmonised consumer prices        1.9      1.6        1.5
RPDI                              0.4      0.4        2.2
Unemployment, %                   5.2      5.0        5.1

Govt. balance as % of GDP         0.3      0.9        1.2
Govt. debt as % of GDP (b)       79.6     76.2       65.7

Current account as % of GDP       7.4      7.8        5.6

Note: (a) Change as a percentage of GDP. (b) End-of-year basis;
Maastricht definition.

Table B9. France
Percentage change

                                2009     2010     2011     2012

GDP                             -3.1      1.6      1.7      0.0

Consumption                      0.2      1.4      0.2     -0.1
Investment : housing           -12.1     -0.3      3.2      0.4
           : business          -12.9      4.4      5.1     -0.2
Government : consumption         2.6      1.7      0.2      1.4
           : investment          2.5     -8.2     -1.8      0.2
Stockbuilding (a)               -1.2      0.5      0.9     -0.5
Total domestic demand           -2.6      1.9      1.7     -0.2

Export volumes                 -11.8      9.2      5.5      2.5
Import volumes                  -9.5      8.4      5.2     -0.3

Average earnings                 3.1      1.9      3.0      1.6
Harmonised consumer prices       0.1      1.7      2.3      2.2
RPDI                             1.5      0.9      0.2      0.2
Unemployment, %                  9.5      9.7      9.6     10.3

Govt. balance as % of GDP       -7.5     -7.1     -5.2     -4.8
Govt. debt as % of GDP (b)      79.2     82.4     86.0     90.8

Current account as % of GDP     -1.3     -1.6     -2.0     -2.2

                                                Average
                                2013     2014   2015-19

GDP                             -0.2      0.5        1.7

Consumption                     -0.1      0.3        1.1
Investment : housing            -0.4      1.0        5.3
           : business           -0.4      1.4        2.2
Government : consumption        -1.2     -1.0        1.3
           : investment         -2.8      0.7        2.1
Stockbuilding (a)               -0.3      0.0        0.0
Total domestic demand           -0.8      0.1        1.5

Export volumes                   2.5      3.9        6.2
Import volumes                  -0.5      2.7        5.7

Average earnings                 1.4      1.7        2.5
Harmonised consumer prices       1.7      1.9        1.5
RPDI                            -0.5      0.5        1.7
Unemployment, %                 10.9     10.7        9.6

Govt. balance as % of GDP       -4.0     -3.4       -2.5
Govt. debt as % of GDP (b)      93.1     94.1       93.7

Current account as % of GDP     -1.4     -0.9       -0.9

Note: (a) Change as a percentage of GDP. (b) End-of-year basis;
Maastricht definition.

Table B10. Italy
Percentage change

                                 2009     2010     2011     2012

GDP                              -5.5      1.7      0.5     -2.4

Consumption                      -1.6      1.5      0.1     -4.3
Investment : housing             -8.4     -0.4     -3.3     -6.3
           : business           -15.3      4.5     -0.6    -10.1
Government : consumption          0.8     -0.4     -1.2     -2.9
           : investment          -3.3     -5.9     -4.4     -8.3
Stockbuilding (a)                -1.3      1.2     -0.5     -0.7
Total domestic demand            -4.4      2.2     -0.9     -5.4

Export volumes                  -17.7     11.2      6.6      2.2
Import volumes                  -13.6     12.3      1.1     -7.8

Average earnings                  1.7      2.0      1.2      0.0
Harmonised consumer prices        0.8      1.6      2.9      3.3
RPDI                             -3.0     -0.6     -1.0     -2.2
Unemployment, %                   7.8      8.4      8.4     10.6

Govt. balance as % of GDP        -5.4     -4.5     -3.9     -2.9
Govt. debt as % of GDP (b)      116.5    119.3    120.6    128.1

Current account as % of GDP      -2.0     -3.5     -3.1     -0.8

                                                 Average
                                 2013     2014   2015-19

GDP                              -1.3      0.3        2.3

Consumption                      -1.8      0.0        0.6
Investment : housing             -2.3     -1.1        6.9
           : business            -2.6      0.4        7.5
Government : consumption        -1.1       0.0        1.1
           : investment          -3.6      1.3        1.4
Stockbuilding (a)                -0.5      0.2        0.1
Total domestic demand            -2.4      0.3        2.0

Export volumes                    2.3      3.2        6.0
Import volumes                   -1.5      3.4        5.7

Average earnings                 -0.9     -1.5        1.8
Harmonised consumer prices        2.1      1.7        2.5
RPDI                             -2.1     -1.5        1.3
Unemployment, %                  11.8     11.6        9.9

Govt. balance as % of GDP        -2.7     -2.1      -1.1
Govt. debt as % of GDP (b)      130.1    129.6      116.7

Current account as % of GDP      -0.4     -0.8        0.3

Note: (a) Change as a percentage of GDP. (b) End-of-year basis;
Maastricht definition.

Table B11. Spain
Percentage change

                                 2009     2010     2011     2012

GDP                              -3.7     -0.3      0.4     -1.4

Consumption                      -3.8      0.7    -1.0      -2.1
Investment : housing            -23.1    -10.1     -6.7     -8.0
           : business           -16.7     -3.7     -5.7    -14.2
Government : consumption          3.7      1.5     -0.5     -3.7
           : investment           0.3      0.0      0.0     -0.2
Stockbuilding (a)                 0.0      0.1     -0.1      0.0
Total domestic demand            -6.3     -0.7     -1.9     -3.9

Export volumes                  -10.0     11.3      7.6      3.1
Import volumes                  -17.2      9.2     -0.9     -5.0

Average earnings                  4.0     -0.1     -0.5     -0.9
Harmonised consumer prices       -0.2      2.0      3.1      2.4
RPDI                              1.0     -4.8     -3.3     -6.6
Unemployment, %                  18.0     20.1     21.7     25.0

Govt. balance as % of GDP       -11.2     -9.4     -8.6    -10.3
Govt. debt as % of GDP (b)       53.9     61.5     69.3     80.7

Current account as % of GDP      -4.8     -4.5     -3.5     -1.7

                                                  Average
                                 2013     2014    2015-19

GDP                              -1.8      0.2        2.6

Consumption                      -3.7     -3.1       -1.5
Investment : housing             -8.1     -2.4       10.0
           : business          -11.5      -0.2       12.3
Government : consumption         -3.1     -2.7        1.7
           : investment          -1.4     -1.2        2.8
Stockbuilding (a)                -0.2      0.0        0.0
Total domestic demand            -4.7     -2.7        1.8

Export volumes                    4.5      9.4        6.8
Import volumes                   -4.6      1.3        5.7

Average earnings                 -3.0     -1.8        0.2
Harmonised consumer prices        1.8      1.4        1.5
RPDI                             -7.0     -3.5        0.1
Unemployment, %                  26.9     26.0       18.4

Govt. balance as % of GDP        -7.0     -6.8       -3.6
Govt. debt as % of GDP (b)       90.6     98.3      101.7

Current account as % of GDP      -0.4      0.2        1.3

Note: (a) Change as a percentage of GDP. (b) End-of-year basis;
Maastricht definition.

ACKNOWLEDGEMENTS

All questions and comments related to the forecast and its
underlying assumptions should be addressed to Dawn Holland
(dholland@niesr.ac.uk). We would like to thank Angus Armstrong, Simon
Kirby and Jonathan Portes for helpful comments and discussion and Jean
MacRae for years of support.

This forecast was completed on 2.5 April, 2013.

Exchange rate, interest rates and equity price assumptions are
based on information available to 19 April 2013. Unless otherwise
specified, the source of all data reported in tables and figures is the
NiGEM database and NIESR forecast
baseline

.

REFERENCES

Barrell, R., Holland, D., Hurst, I. (2013), ‘Fiscal
multipliers and prospects for consolidation’, OECD Journal,
Economic Studies, Vol. 2012, pp. 71-102.

Bundesbank (2013), Monthly Report–February 2013, 65(2).

Crafts, N. (2013), ‘Long-term growth in Europe: what
difference does the crisis make?’, National Institute Economic
Review, 224, May, pp. R 14-28.

NOTES

(1) International Labour Organization, Global Employment Trends,
2013. The
ILO

abbr.
International Labor Organization

Noun 1. ILO – the United Nations agency concerned with the interests of labor
International Labor Organization, International Labour Organization
 estimates that in the five years to the end of 2012,
unemployment globally rose by 28 million (shared equally between
advanced and developing economies) and that a further 39 million people
dropped out of the labour market.

(2) International Monetary Fund, Global Financial Stability Report,
April 2013.

(3) Ben S. Bernanke, ‘Monetary Policy and the Global
Economy’, Speech delivered at the
London School of Economics

, March
25, 2013, Board of Governors of the Federal Reserve System.

(4) The Dow-Jones news service reported on April 25, 2013 as
follows: ‘There will be no common European deposit insurance scheme
for the “foreseeable future”, Chancellor Angela Merkel said
today at German banking conference. Her remarks are the most explicit
yet from a German government official that one of the desired pillars
for the EU’s proposed banking union won’t be in place any time
soon. “The German government rejects a unified European deposit
insurance–at least for the foreseeable future,” said Ms. Merkel.
“We
prioritise

, however, very clearly and vehemently,” a
harmonisation of the European deposit system, she added. Her comments
come one day after the head of Germany’s central bank told the same
conference that at the current time a common insurance scheme was
inappropriate. Such a plan is “not sensible” because
Europe’s financial system isn’t sufficiently integrated, said
Jens Weidmann, head of the Bundesbank, yesterday.’

(5) See the discussion in the National Institute Economic Review,
February 2013, p. F 17.

(6) Ettore Dorrucci, Gabor Pula and Daniel Santabarbara (2013),
‘Chinas’ economic growth and rebalancing’, Occasional
paper series, No 142, European Central Bank.

(7) World Economic Outlook Database, April 2013, IMF.

Table 1. Forecast summary
Percentage change

                         Real GDP (a)

             World   OECD    China   EU-27     Euro
                                               Area

2009         -0.6    -3.6     9.0     -4.3      -4.3
2010          5.1     3.0    10.4      2.0       1.9
2011          3.8     1.9     9.3      1.6       1.5
2012          3.1     1.4     7.7     -0.3      -0.5
2013          3.3     1.4     7.8      0.1      -0.4
2014          3.7     2.0     7.4     I.I        0.9
2003-2008     4.4     2.3    11.0      2.1       1.9
2015-2019     4.2     2.6     7.0      2.1       1.9

                    Private consumption deflator

             OECD    Euro     USA    Japan    Germany
                     Area

2009          0.2    -0.5     0.1     -2.4       0.0
2010          1.7     1.7     1.9     -1.7       2.0
2011          2.3     2.5     2.4     -0.8       2.0
2012          1.8     2.1     1.8     -0.6       1.7
2013          1.7     2.0     1.4     -0.1       2.0
2014          1.8    I.6      1.7      1.3       1.6
2003-2008     2.2     2.2     2.7     -0.5       1.4
2015-2019     2.2     1.8     2.5      0.9       1.5

                        Real GDP (a)

              USA     Japan    Germany    France

2009          -3.1     -5.5       -5.1      -3.1
2010           2.4      4.7        4.0       1.6
2011           1.8     -0.5        3.1       1.7
2012           2.2      2.0        0.9       0.0
2013           2.2      2.0        0.5      -0.2
2014           2.3      2.0        1.3       0.5
2003-2008      2.2      1.4        1.5       1.6
2015-2019      2.9      1.3        1.3       1.7

                Private consumption deflator

             France   Italy       UK      Canada

2009          -0.7     -0.1        1.4       0.4
2010           1.1      1.5        3.7       1.4
2011           2.1      2.9        4.5       2.1
2012           1.7      2.8        2.7       1.3
2013           1.9      2.1        2.6       1.6
2014           1.9      1.5        1.9       2.4
2003-2008      2.1      2.6        2.5       1.5
2015-2019      1.5      2.3        2.0       1.9

                                         World
                  Real GDP (a)         trade (b)

             Italy     UK     Canada

2009         -5.5     -4.0     -2.8       -10.4
2010          1.7      1.8      3.2        12.5
2011          0.5     I.0       2.6         5.8
2012         -2.4      0.3      1.8         2.8
2013         -1.3      0.9      1.6         4.2
2014          0.3      1.5      2.4         5.8
2003-2008     0.9      2.5      2.4         7.7
2015-2019     2.3      2.3      2.9         6.9

                Interest rates(c)         Oil
                                        ($ per
              USA    Japan     Euro     barrel)
                               Area       (d)

2009          0.3      0.1      1.3        61.8
2010          0.3      0.1      1.0        78.8
2011          0.3      0.1      1.2       108.5
2012          0.3      0.1      0.9       110.4
2013          0.3      0.1      0.8       106.1
2014          0.3      0.1      0.8        98.8
2003-2008     3.0      0.2      2.8        57.5
2015-2019     2.2      0.5      1.7       102.3

Notes: Forecast produced using the NiGEM model. (a) GDP growth at
market prices. Regional aggregates are based on PPP shares. (b)
Trade in goods and services. (c) Central bank intervention rate,
period average. (d) Average of Dubai and Brent spot prices.