OECD Sees Global GDP Stabilizing on Continued Disinflation

Summary

The discussion focuses on the U.S. and global economic outlook. The U.S. GDP growth is expected to slow to 2.6% in 2024 and 1.6% in 2025, driven by reduced consumer spending and government expenditures. Despite the slowdown, the U.S. remains robust compared to Europe and China. Europe is projected to have modest growth, with challenges in Germany’s industrial sector. In China, despite recent stimulus, concerns remain about high private debt and real estate market adjustments. The speaker highlights the need for structural reforms in Germany and the long-term nature of China's economic adjustments.

Takeaways

• 🇺🇸 The U.S. GDP growth is expected to slow, with projections of 2.6% for 2024 and 1.6% for 2025.
• 📉 The slowdown is largely due to decreased consumption, as pandemic-related savings are depleting.
• 💡 Despite the slowdown, the U.S. is still outperforming many other economies, such as Europe and China.
• 🛑 U.S. government consumption is expected to slow, which is seen as positive for fiscal responsibility.
• 📊 A statistical carryover from a strong last quarter in 2023 also contributes to the perceived slowdown in 2024.
• 🇪🇺 Europe is projected to grow at 1.3% in 2025, with differences across countries; for example, Spain is expected to perform better than Germany.
• 🏗️ Europe’s growth is supported by recovering wages, increased consumption, and infrastructure investments from resilience funds.
• 🔧 Germany faces both cyclical and structural issues, including competition with China and slow digital infrastructure development.
• 🏠 China's growth is hindered by high private debt (170% of GDP) and a large real estate market, limiting the impact of recent government stimulus.
• 🇨🇳 China’s projected growth is 4.9% for 2024 and 4.5% for 2025, with subdued domestic consumption and a real estate sector that may take longer to stabilize.

Q & A

Why is the GDP growth in the United States projected to slow down in 2024 and 2025?

The slowdown in U.S. GDP growth is primarily due to a decrease in consumption, both from individuals and the government. Savings from the pandemic are running out, and the U.S. government is aiming for a more fiscally prudent policy to address the deficit and debt. Additionally, statistical carryover effects from a strong Q4 in 2023 contribute to the lower growth projections for 2024 and 2025.

Why does the U.S. economy still outperform other major economies despite the projected slowdown?

The U.S. economy remains robust compared to other global economies like China and Europe due to its dynamic nature. While consumption and investment may slow down, the U.S. continues to recover from the pandemic and energy crisis better than many other regions.

What are the main factors influencing the slowdown in U.S. consumption?

The primary factors influencing the slowdown in U.S. consumption include the depletion of savings accumulated during the pandemic and a reduction in government consumption as part of a strategy to return to fiscally responsible policies.

How do the economic trajectories of the U.S. and Europe differ in the coming years?

While the U.S. is projected to grow at 2.6% in 2024 and 1.6% in 2025, Europe’s growth remains lower, with an anticipated increase to 1.3% in 2025. The U.S. remains a more dynamic economy, whereas Europe, particularly Germany, is dealing with structural issues in manufacturing and competition from China.

Why is Germany's economy stagnating, and what structural challenges does it face?

Germany's economy is facing both cyclical and structural challenges. Cyclically, it is recovering from the energy crisis, but structurally, there is declining demand for German manufacturing from China and other factors like competition in manufacturing and slow digital infrastructure development. Reforms are needed to boost competitiveness, reduce red tape, and foster growth.

What role do consumption and investment play in Europe’s modest economic growth?

Consumption, driven by recovering wages, is expected to support some economic growth in Europe. Additionally, investment linked to the European resilience funds, particularly in infrastructure projects, will contribute to modest growth rates, although the overall outlook remains subdued.

What are some of the key recommendations for Germany to improve its economic performance?

Key recommendations for Germany include improving digital infrastructure and enacting competition-friendly reforms to reduce barriers to services. These reforms could significantly boost Germany’s growth, with estimates suggesting a potential 50% growth increase over ten years if implemented.

What impact is China’s private debt and real estate market having on its economy?

China's high level of private debt, around 170% of GDP, and a large real estate market are major concerns. The real estate sector is undergoing adjustments, and historically, such adjustments tend to take longer to resolve than authorities may hope. These factors are likely to limit the effectiveness of recent stimulus measures.

How are Chinese exports performing despite the challenges in other parts of the economy?

Chinese exports, particularly in manufacturing, continue to perform relatively well. However, domestic consumption remains subdued, limiting the overall growth potential of the economy.

What is the projected growth for China in 2024 and 2025, and how might recent stimulus measures affect this forecast?

China's projected growth is 4.9% for 2024 and 4.5% for 2025. While recent stimulus measures may have a positive impact, the overall forecast is unlikely to change significantly due to the lingering effects of high private debt and challenges in the real estate market.

Outlines

00:00

📉 U.S. GDP Growth and Stabilization Projections

The U.S. economy is expected to slow down with a GDP growth of 2.6% in 2024 and 1.6% in 2025, largely due to consumption declines and a statistical carryover from a strong end to 2023. Despite the slowdown, the U.S. is faring better than other major economies, including China and Europe, due to its resilience post-pandemic and the energy crisis. A reduction in both individual and government consumption, along with a shift to more fiscally prudent policies, explains the slowdown. Yet, the U.S. economy remains dynamic, especially compared to global peers.

05:00

🇪🇺 Sluggish Growth in the Eurozone

Europe's growth forecast has been downgraded to 1.3% for 2025, with Germany showing near-zero growth for 2024. France and Spain are expected to perform slightly better due to increased consumption and infrastructure projects linked to resilience funds. Germany faces structural challenges, including competition from China in manufacturing and underinvestment in digital infrastructure. To boost growth, the speaker suggests reforms to enhance competition and reduce red tape. If Germany implements such reforms, it could significantly boost its economic growth over the next decade.

🏗️ Challenges and Reforms in Germany

Germany's economic struggles are partly due to cyclical factors like the energy crisis and reduced demand from China, particularly for its manufacturing sector. Structural issues also play a role, such as the need for better digital infrastructure and reduced red tape to enhance competition and business services. Reforming these areas could potentially increase Germany's growth by 50% over the next ten years. The country faces pressure to adjust as Chinese competition in manufacturing intensifies.

🏦 China’s Economic Outlook and Policy Response

China is projected to grow at 4.9% in 2024 and 4.5% in 2025, although stimulus measures from the People's Bank of China (PBOC) are unlikely to significantly change this forecast. While Chinese exports, particularly in manufacturing, are performing well, domestic consumption remains weak. High levels of private debt, estimated at 170% of GDP, and ongoing adjustments in the real estate sector present challenges. Historical examples suggest that real estate corrections can take longer than anticipated, potentially limiting the impact of recent stimulus measures.

Keywords

💡GDP Growth

Gross Domestic Product (GDP) growth refers to the increase in the value of all goods and services produced by an economy over a period of time. In the video, the projected GDP growth for the United States is discussed, with a slowdown expected from 2.6% in 2024 to 1.6% in 2025. This concept is central to understanding the overall economic health and performance being forecasted.

💡Monetary Policy

Monetary policy involves the management of interest rates and the total supply of money in circulation, typically by a central bank. The video's forecast mentions that the slowdown in the U.S. GDP growth will be cushioned by monetary policy, indicating that measures such as adjusting interest rates might be used to manage economic stability.

💡Consumption

Consumption refers to the spending by households and government on goods and services. The video highlights that a slowdown in consumption, due to depleted savings from the pandemic, is a key reason for the projected economic slowdown in the U.S. This reflects the relationship between consumer spending and economic growth.

💡Fiscal Policy

Fiscal policy involves government spending and tax policies to influence economic conditions. The video suggests a need for the U.S. to return to a fiscally prudent policy to manage its deficit and debt, indicating that government spending will be reduced, which impacts GDP growth.

💡Private Debt

Private debt refers to the total amount of debt owed by individuals and private businesses. In the context of China, the video mentions that high private debt, particularly related to the real estate sector, is a significant concern that could hinder economic recovery despite other stimulus measures.

💡Real Estate Market

The real estate market comprises the buying, selling, and development of land and buildings. The video discusses the large size of China's real estate market and its impact on the economy, noting that adjustments in this sector can significantly influence overall economic performance.

💡Export

Exports are goods and services produced in one country and sold to another. The video mentions that Chinese exports, particularly in manufacturing, are performing well, which contributes to the country's GDP. However, reduced demand for German exports, partly due to competition from China, is affecting Germany's economic performance.

💡Purchasing Power

Purchasing power is the ability to buy goods and services, often influenced by wage levels and inflation. The video forecasts higher growth in Europe due to an increase in purchasing power, suggesting that wage recovery will lead to higher consumption and thus economic growth.

💡Resilience Funds

Resilience funds refer to financial resources allocated to support recovery and strengthen the economy against future shocks. The video indicates that European investment in infrastructure projects, partly funded by resilience funds, will contribute to higher growth in the region.

💡Structural Issues

Structural issues are long-term problems within an economy that affect its performance, such as inefficiencies or outdated regulations. The video highlights structural issues in Germany, like competition with China and the need for digital infrastructure improvements, which hinder economic growth despite other recovery efforts.

Highlights

U.S. GDP growth projected to slow to 2.6% in 2024 and 1.6% in 2025 due to a statistical carryover and weakening consumption.

The U.S. economy remains robust compared to other global economies, particularly China and Europe, despite the slowdown.

The slowdown in U.S. consumption is driven by the depletion of savings accumulated during the pandemic.

Government consumption in the U.S. is expected to slow, contributing to a reduction in the fiscal deficit and debt.

The U.S. economy's resilience is supported by its dynamism, even as individual and government consumption slows.

Europe's economic recovery is expected to be modest, with growth forecasts at 1.3% in 2025, driven by recovery in wages and consumption.

Germany's economy is stagnating, facing both cyclical and structural challenges, including reduced demand from China for its manufacturing.

Germany’s manufacturing sector is facing stiff competition from China, contributing to its economic slowdown.

Investment in Europe, particularly in infrastructure projects tied to resilience funds, will play a role in its modest growth.

France is expected to perform slightly better due to consumption and the impact of the 2024 Olympics, forecasting 1.2% growth.

Structural reforms in Germany, particularly in digital infrastructure and reducing bureaucratic red tape, are essential for future growth.

Germany could increase its growth by 50% over ten years if it adopts competition-friendly reforms and modernizes infrastructure.

China’s economy is expected to grow at 4.9% in 2024 and 4.5% in 2025, but challenges remain due to high private debt and a large real estate market.

China's consumption remains subdued despite export strength, with private debt at 170% of GDP being a significant economic burden.

Chinese stimulus efforts may help slightly, but the ongoing real estate adjustment is expected to take longer than anticipated.

Transcripts

I want to begin with the United States and get to some of your forecast on the

U.S. The GDP growth, the United States

projected to slow but be cushioned by monetary policy with growth projected to

be at 2.6% in 24 this year and 1.6% in 25.

Two part question Why the slow down one and two?

Why did you think we can actually stabilize around one and a half percent

GDP in America and not go to someplace worse?

Well, good morning. Great to be on the show.

Well, first of all, I think it's important to realize that we're talking

about a very robust U.S. economy compared to the rest of the

world, because we see we can back to China.

China's slowing down quite significantly.

We also think that Europe is not doing as well as it could.

And other parts of the world are not doing so well.

So under the circumstances, knowing that we had a huge pandemic and a big energy

crisis, the United States is doing fairly okay.

So what explains the slowdown? Well, there's first of all, there's a

statistical carryover issue. Basically, the last quarter of 2003 was

stronger than we expected. It has a statistical carryover.

And so that explains part of the slowdown.

And so if you take into account quarter on quarter, we would forecast, you know,

1.9 for the slowdown will be from 1.9 to 1.6.

But the second issue, why why is this happening?

Well, first of all, has to do with consumption.

And so a lot of people had savings during the pandemic and they are running

out. And so this is not so good for

consumption. So this slowdown in consumption, there

will be a slowdown in government consumption, which is welcome because we

think that both the deficit and the debt in the United States, you know, we

should go back to a fiscally prudent policy.

So I think it's very important to to go there.

And obviously there's also an issue regarding

exports and investment. But we think that the main reasons why

the United States will continue to do well is because it continues to be a

very dynamic economy compared to other parts of the world, even though

certainly the slowdown is explained by the consumption, both of the government

and the individuals. You make a great case for why we could

see something of a slowdown in the US, but still why the U.S.

has a better growth trajectory than, say, Europe.

So then why don't you have the euro region actually increasing to 1.3%?

I know it's downgraded from your previous estimate in 2025, but where are

the accelerators to get us away from what we're seeing now, especially given

some of the trajectory in the industrial base in Germany?

Well, we with Germany almost stagnated this year, almost close to zero.

This year we see France doing a little bit better, partly because of the

Olympics, but partly because of consumption as well.

1.2, 1.2%. And we have Italy doing so.

So Spain much stronger next year. We think that there'll be higher growth

in Europe and not fantastic when we're talking still 1.3%.

But we see higher growth because we think that the recovery that we see in

terms of purchasing power will continue. So because wages are recovering and so

this will happen will have an impact on consumption.

But we also think that some investment will take place partly linked to the

resilience funds that were spent by the Europeans on infrastructure projects.

So this will help a little bit. So that's what explains a little bit

better performance of Europe, but certainly not spectacular growth rates,

all things being equal. Where is the growth really going to come

from? Where is the growth engine, the new

growth engine in Europe at a time where some of the challenges for Germany are

structural, especially at a time where Chinese growth has been unreliable?

I think you just mentioned something that is absolutely essential.

Part of the the problems with Germany right now are cyclical.

So it's coming out of the energy crisis. And we know that there's been a downward

trajectory for part of their manufacturing, but also services.

And also because consumers in Germany have been very prudent.

So they've been saving more than other parts of Europe.

But there's also structural issues. But you mentioned something that is

absolutely true, which is a competition with China, and particularly in

manufacturing. And there's less demand from China as

well for for German manufacturing. So that is having an impact.

But also there's another issue that I think is important to highlight.

We we think that Germany should focus on, first of all, improving their

infrastructure, especially on digital infrastructure.

They are lagging compared to other parts of Europe.

But in particular, it's time to go back to reforms in Germany.

There's many competition friendly reforms that are needed.

There's too many barriers to services in many parts of the German economy.

It's still too difficult, too much red tape around, and we think this is having

an impact. In fact, we calculated what's the impact

of all this. And you say that for the obesity economy

is in order to be with the best practices gone with like Germany could

profit, it could increase growth by 50% over ten years if they would do this

type of reform. So besides the structural issues linked

to China and the structure of the economy, we think that it is important

also to go back to reforms for Germany. Well, let's talk about China.

The PBOC out with another move today. Do you think any of this is going to

help spur the Chinese economy? Well, we are forecasting 4.9% for this

year and 4.5% next year. This was before

the stimulus, but I don't think that there will be a huge change in the

forecast. Right now for two reasons.

We know that their exports, Chinese exports are doing fairly well in terms

of manufacturing in particular. They are doing fairly well, but

consumption continues to be a bit subdued in China.

So this could help these some of these measures could help a little bit.

But we think really the main element of China continues to be

high debt, private debt. So remember, you know, private debt is

there about 170% of GDP. It's mostly quasi because it's so that

but it's it's quite private debt. And on top of this, we know that there

is a very large real estate market, much larger than most economies.

And so there is some adjustment that will have to continue.

And so the question is whether these measures will be able to do to help

demand or not. It's a question mark that we'll see in

the next few months. But to be honest with you, what if you

look at the historical examples of other countries, when you have a big real

estate adjustment, very often takes a bit longer than authorities would like.