The global recovery is becoming self-sustained and more broad based. The recovery is taking place at different speeds, between advanced and emerging economies, but also within the first group of countries. Unemployment remains high across most of the OECD countries. In most, headline inflation has risen strongly, and expectations are also drifting up; however, underlying inflation seems likely to edge up only slowly. Vibrant domestic demand growth, negative supply shocks and strong capital inflows in non-OECD economies are generating inflationary pressures prompting policy restraint that could slow the recovery.

The recovery from the deepest recession in decades is becoming more broadly based. Global growth has picked up since the soft patch in the middle of last year and activity is driven increasingly by strengthening private final demand. However, progress remains uneven across economies. In the near term, the adverse supply-side shocks from high commodity prices and the earthquake in Japan and its aftermath are damping activity somewhat and pushing up headline inflation. Such effects should fade from the latter half of this year, provided commodity prices stabilise and inflation expectations do not become unanchored. Financial conditions continue to improve and monetary policy remains accommodative in the OECD economies, though increasingly less so in emerging market economies where spare capacity has been largely absorbed.

The recovery is projected to strengthen in the near term, but there are concerns about the longer-term legacy of the crisis, particularly because of the emergence of unsustainable fiscal imbalances as well as the possible damage to long-term growth prospects. Based on a technical exercise, this chapter considers macroeconomic prospects for OECD economies to the middle of the next decade and the challenges and the associated risks.

Nearly two years after production began to recover from the worst recession to have hit OECD countries since the 1930s, the labour market situation remains a major preoccupation. At the end of 2010, the average OECD unemployment rate was still close to the historical peak reached during the crisis. In 12 OECD countries it remained two percentage points or more above the pre-crisis level, and even where the rise in joblessness was less severe, the recovery has been generally too weak so far to allow for a significant fall in unemployment (Figure 5.1). A main concern in countries most severely hit is that persistently high levels of unemployment – and a rising share of unemployed workers facing long spells without a job – will eventually result in widespread deterioration of human capital, discouragement and labour market withdrawal. The risk is strongest for youth and less skilled workers who have been disproportionately affected by the rise in unemployment.

Increasing international capital flows can support long-term income growth through a better international allocation of saving and investment. However, they can also make macroeconomic management more difficult, as currently being experienced by several emerging economies, because of the faster international transmission of shocks and the increased risks of overheating, credit and asset price boom-andbust cycles and abrupt reversals in capital inflows.

Progress in science is sometimes seen as a continuous increase in the set of accepted facts and theories. But, as shown by Kuhn (1962), periods of continuity are occasionally interrupted by the discovery of anomalies, which lead to a new paradigm, i.e. a new way of perceiving and analysing the subject of study. Even though the “dismal science” has never seen universal agreement on a single paradigm, a succession of paradigms can still be distinguished in the history of economic policymaking. Each paradigm defines “not only the goals of economic policy and the kind of instruments that can be used to attain them, but also the very nature of the problems they are meant to be addressing” (Hall, 1993, pp. 279).

This annex contains data on key economic series which provide a background to the recent economic developments in the OECD area described in the main body of this report. Data for 2010 to 2012 are OECD estimates and projections. The data in some of the tables have been adjusted to conform to internationally agreed concepts and definitions in order to make them more comparable across countries, as well as consistent with historical data shown in other OECD publications. Regional aggregates are based on weights that change each period, with the weights depending on the series considered. For details on aggregation, see OECD Economic Outlook Sources and Methods.