The economic recovery has lost significant momentum, with mediocre labour market performance and weak sentiment exerting a drag on domestic demand, at a time when fiscal tightening is beginning to have traction. Although there have been some signs of healing in financial markets, equity market losses and declines in house prices have again weighed on household wealth. All of these factors will continue to restrain demand for some time, but gradual improvements in confidence and accommodative monetary policy should help bring about an acceleration in output growth after mid-2012.

After a sharp contraction in the wake of the Great East Japan Earthquake in March 2011, the economy began to rebound in May 2011. Public and private reconstruction spending will drive the recovery through mid-2012, with growth of 2% for the year. As public reconstruction outlays wane, the expansion will be supported through 2013 by a pick-up in export growth that improves labour market conditions and boosts private consumption. Given the large output gap, deflationary pressures are likely to continue through 2013, with the unemployment rate remaining above its pre-2008 crisis level.

The recovery has stalled as confidence has weakened and financial conditions have deteriorated as a result of the sovereign debt crisis. The momentum in domestic demand has waned and external demand is slowing sharply. Fiscal consolidation and adjustment of private sector balance sheets will continue to restrain demand growth. Unemployment will begin to rise again and there will be a wide margin of spare capacity. Inflation will fall, against the background of weak underlying price pressures. The announcement of the measures agreed at the October Euro Summit failed to restore confidence and needs to be followed up by swift mobilisation of adequate financial resources to ease contagion. To enhance fiscal credibility, euro countries should pursue consolidation plans set out in their Stability Programmes, while further monetary loosening is needed to help support activity. Provided that policy actions are sufficient to restore confidence gradually, activity should pick up somewhat from mid-2012. The main risks centre on the interactions of slow growth, sovereign debt and weaknesses in the banking system, as well as the ability of policymakers to find a credible solution to the debt crisis.

The economy is facing a period of weakness reflecting a worldwide loss of confidence and lower world trade growth, which usually hits Germany more than others through weaker exports and investment. Economic activity is expected to recover gradually during 2012 as uncertainty declines and trade picks up. Growth rates may then rise above potential from around mid-2012, given the absence of underlying imbalances in household and corporate balance sheets and only moderate fiscal consolidation needs. Unemployment is projected to remain close to historically low levels, supporting consumer confidence. The fiscal situation improved rapidly due to both structural and cyclical factors and, so long as the weakening of growth is temporary, it is unlikely to derail this improvement.

Given the sharp slowdown triggered by unresolved European sovereign-debt problems, France may have entered a short, shallow recession. Real GDP is projected to grow by just 0.3% in 2012 before accelerating to about 1.5% in 2013. Job-creation prospects have deteriorated, and the unemployment rate is projected to increase to 10.4% in end-2012 before stabilising in 2013. As economic slack increases, inflation should fall to around 1% in 2013.

Italy’s economic recovery has lost momentum. Output is set to decline well into 2012, and thereafter the recovery is projected to be weak. Confronted with adverse market sentiment, the previous government adopted emergency measures to balance the budget in 2013. The newly-appointed government needs to fully implement this programme as well as undertake important structural reforms to spur growth. Fiscal tightening, combined with slowing world demand and weak competitiveness, will be a drag on growth in the short term, but it is needed to ensure progress toward fiscal sustainability. Unemployment will rise and wage growth will moderate, as will inflation after the impact of a VAT rise has worked through.

Weak international demand, continued retrenchment among households and needed fiscal consolidation has halted the recovery. Growth will start to pick up during 2012 as exports and household consumption recover, with further strengthening in 2013. Unemployment is rising and will reach 9% in 2013, while inflation is presently peaking as anticipated and is expected to fall below the 2% target in 2013 as temporary effects from VAT hikes and commodity prices wane. Monetary policy is supportive, with the Bank rate at 0.5% and quantitative easing being resumed. Further expansions of quantitative measures are warranted. The ambitious fiscal consolidation has bolstered credibility and helped maintain low bond yields, leaving room for automatic stabilisers to work fully to cushion the slowdown.

The outlook for the Canadian economy has weakened significantly, mainly because of a deteriorating external environment. Heightened risks from renewed financial-market turmoil linked to the European sovereign debt crisis and high levels of household indebtedness are eroding consumer confidence. While business investment continues to expand robustly, weaker prospects for the global economy and persistent strength of the exchange rate are projected to restrain export performance, tempering the speed of economic growth. Underlying inflation will remain subdued due to continued significant economic slack.

The growth of the Australian economy, which was slowed by natural disasters in early 2011, should pick up and remain above or around potential in 2012 and 2013. Vigorous investment and exports, buoyed by the mining boom, along with the positive income effect of high terms of trade, should offset the negative impact on activity of a persistently strong exchange rate and fiscal consolidation. Unemployment is expected to stay low and underlying inflation contained as the remaining slack in the economy gradually disappears.

After a strong first half of 2011, growth has slowed markedly and will continue to do so into the first half of 2012. The deterioration in the external environment and heightened uncertainty has weighed on exports and investment, although consumption should continue to grow modestly, supported by a robust labour market and falling inflation. The economy is projected to return to trend growth by the end of 2012 and to grow slightly above trend in 2013 in the wake of a re-invigorated export and investment driven recovery.

The economy is slowing under the influence of renewed international turmoil, which is dragging down exports and investments. Growth is projected to pick up gradually around mid-2012, supported by favourable monetary conditions and higher international demand for Belgian goods. However, needed fiscal consolidation will damp the recovery. Unemployment is likely to rise over most of the projection period. Nevertheless, wage and price increases will remain higher than in other European countries as a result of the automatic wage indexation mechanism, eroding external competitiveness.

Chile’s vigorous economic recovery, which was fuelled by high copper prices and post-earthquake reconstruction, has lost some momentum as the effects of the international slowdown feed through to domestic activity. Growth is projected to pick up once again in 2013 as confidence improves and the global economy normalises. The acceleration of activity in China – Chile’s main export destination – will contribute to faster exports.

Growth will slow in 2012, from an already modest pace, as a result of weakening exports and ongoing fiscal consolidation. It will become stronger and more broad-based again in 2013, underpinned by an improvement in world trade and recovery of domestic demand. Inflation is set to spike temporarily in 2012 due to indirect tax increases but will otherwise stay close to the central bank’s target.

The muted recovery, led so far by exports, government consumption and restocking, is expected to come to a halt despite low interest rates and ongoing fiscal stimulus. The renewed global slowdown will depress exports and postpone private investment. Uncertainty and worsening labour market conditions will act as a drag on household consumption. As a result, activity is not projected to pick up pace before next spring. With continued slack in the economy, inflation is set to remain subdued.

The rapid export-led recovery is projected to slow down but the economy will continue to outperform other European OECD countries, benefiting from reduced unit labour costs and recent investments in export-oriented manufacturing sectors. Private consumption will make an increasing contribution to growth following improvements in the labour market and in household balance sheets. Headline inflation will decline, as commodity and energy price shocks fade out, although core inflation will gradually increase.

The recovery is losing momentum. Exports will continue to deteriorate as the global economy slows and Finland’s export performance remains weak. Domestic demand has held up well so far, but consumer confidence is eroding rapidly and real incomes are falling, foreshadowing a marked slowdown in private consumption and residential investment. Weak demand will weigh on business investment and overall output growth will slow during 2012. A recovery during 2013 is projected as the global outlook brightens, uncertainty falls and income growth resumes. The slowdown will lead to lower employment and higher unemployment. Fiscal policy, while ensuring medium-term consolidation, should allow automatic stabilisers to work.

The economy fell deeper into recession in 2011 despite a rebound in exports, as sizable, but necessary, fiscal adjustment continued, domestic demand plunged and unemployment rose sharply. After contracting further in 2012, output is projected to begin to rise in 2013 led by wide-ranging structural reforms, strengthened external demand, improved competitiveness and higher investment. Substantial economic slack and high unemployment will push inflation to very low levels. To enhance credibility and ensure public debt begins to fall durably, fiscal consolidation must continue and structural reforms be implemented as envisaged. Risks to the outlook are substantial and remain skewed to the downside.

A mild recession is projected in 2012, driven by a fall in business and consumer sentiment, tight bank lending and financial conditions, ongoing deleveraging of the corporate and household sectors and major fiscal consolidation. Strengthening the credibility and predictability of domestic policies, notably through an agreement with multilateral organisations, is of utmost importance to regain investors’ confidence, cushion the effects of fiscal consolidation on activity and return to sound growth.

After successful completion of its IMF-supported adjustment programme, Iceland has returned to economic growth in 2011, despite the euro area turmoil. Growth is led by large energy-intensive investment projects, residential construction and private consumption expenditure, which will be spurred by high recent collective wage agreements. The unemployment rate has started to fall from high levels by Icelandic standards and should continue to decline with the pick-up of economic activity. While Iceland has made considerable progress in putting its public finances on a sustainable path, further consolidation is required, albeit less than in the countries affected by the sovereign debt crisis.

After its severe banking crisis, Ireland has made good progress in redressing fiscal and macroeconomic imbalances, with the help of the EU-IMF programme. Following comprehensive stress tests, the banks were recapitalised through government and private sector contributions. Ireland’s export markets are weakening significantly which, combined with needed fiscal tightening, is expected to result in modest growth in 2012, continued high unemployment and low core inflation. A gradual economic upturn is expected to unfold in 2013.

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

Growth slowed in 2011, reflecting the deceleration in world trade and sluggish activity in the domestic sector, which has not yet fully benefited from the export-led recovery from the 2008 global crisis. More moderate growth is helping to bring inflation back into the central bank’s target range of 2 to 4%. Aided by continued buoyant demand from China, which accounts for a quarter of its exports, and won depreciation, exports are projected to lead a gradual upturn, with output growing by just over 4% in 2013, with the unemployment rate at around 3½ per cent.

Growth has slowed as deteriorating financial conditions and weaker export markets are damping exports of financial services and other products. Domestic demand will therefore remain weak and unemployment is expected to increase. Inflation will ease due to falls in energy and commodity prices. The main risk to the outlook is a worsening of the sovereign debt crisis in the euro area, which could have a lasting impact on the large financial sector. Luxembourg should thus continue to participate in European initiatives to ensure that the banking system is well-capitalised and adequately funded.

Following a strong recovery, growth is expected to lose some momentum along with international trade and US industrial production, although sound fundamentals and supportive macroeconomic policies should help to avert a sharp downturn. GDP is expected to grow by 4% in 2011 and slow to only 3.3% in 2012. With confidence gradually strengthening and some pick-up in growth in partner countries after mid-2012, exports and activity should pick up again in 2013 with GDP growth reaching 3.6%. Given considerable uncertainties regarding the health of the world economy and financial markets stability, risks are, however, mainly to the downside.

The economy contracted in the second half of 2011. Domestic demand weakened as financial turmoil made investors and consumers more cautious and damaged the solvency of pension funds. Growth is projected to gradually pick up again from mid-2012, underpinned by stronger world trade and supportive monetary policy. Unemployment could continue to rise until mid-2012 and currently high inflation pressures will ease.

Economic activity has been comparatively resilient and is set to accelerate over the next two years. Although a still relatively high NZ dollar and a weaker global economy will undermine exports for a time, and policy support will eventually be withdrawn, post-earthquake reconstruction will provide ongoing stimulus. High commodity prices and a recovering labour market are supporting incomes, although private spending will be restrained by necessary deleveraging.

Norway has entered a soft patch, due to weakened confidence and subdued exports, which is expected to persist through mid-2012. The economy will subsequently resume its robust expansion as confidence returns. Consumer price inflation has remained low, reflecting moderate rises in unit labour costs and import prices, but the acceleration of output will lift it somewhat by the end of the projection period. The unemployment rate is likely to remain stable, as increasing labour demand will be met by continued high net immigration.

GDP growth is projected to slow noticeably in 2012 and 2013 due to a sharp fiscal retrenchment and the projected sharp slowdown in the euro area with private consumption and investment decelerating rapidly as a result. Weaker domestic demand may be partly compensated by stronger net exports, driven by the significant depreciation of the zloty and the 2012 football championships.

The economy is expected to contract further through 2012, due to necessary fiscal consolidation, deleveraging and a marked slowdown in external demand. Unemployment is set to rise further, while higher indirect taxes will push up prices. In 2013, a mainly export-led return to growth is expected to gather pace, as global conditions improve. Private domestic demand should also start growing again and the current account deficit is expected to narrow substantially.

After a strong rebound following the crisis, activity is expected to slow in line with weak growth in export markets and a decline in confidence. Due to persistent high unemployment and fiscal consolidation measures, public and private consumption is projected to remain subdued. With the improvement of the global environment and a pick-up in both exports and investment, GDP growth should strengthen from mid-2012 onwards. By damping tax revenues and increasing spending on social benefits, the economic slowdown will temporarily undermine fiscal consolidation plans.

The deleveraging of the corporate sector and a weak external environment will weaken growth throughout the first half of 2012, with both consumption and investment flat. Unemployment has risen to close to 8.5% and inflation remains low. Activity is projected to begin to recover gradually thereafter, with increasing confidence and a pick-up in world trade bolstering private consumption and investment.

Economic growth is projected to contract in the last quarter of 2011, reflecting slowing world trade and the impact of the euro area debt crisis on confidence and domestic funding conditions. The subsequent gradual recovery will be supported by improvements in competitiveness, although ongoing budgetary consolidation will weaken domestic demand. The unemployment rate may peak at 23% in 2012, while weak growth will reduce inflation below 1% in 2013. The fiscal deficit is projected to decline from 9.3% of GDP in 2010 to close to 6% in 2011. The government’s deficit targets of 4.4% in 2012 and 3% in 2013 are assumed to be reached.

Sweden enjoyed a very strong recovery through mid-2011, but is now being hit by the ongoing global economic slowdown. The pace of job creation is set to slow and the decline in unemployment to pause. Private consumption, which has been one of the main drivers of growth, should moderate. As world trade regains strength from mid-2012, Sweden’s economic momentum is projected to pick up. Spare capacity will increase in the near term, hence core inflation should stay subdued.

Slowing activity in export markets and the strong Swiss franc have depressed economic growth in the second half of 2011. Growth will resume with strengthening global activity in the second half of 2012. While employment growth will be weak and the unemployment rate will rise until mid-2012, employment growth will resume at a moderate pace with overall economic activity afterwards. Consistent with persistent slack in the economy, inflation is projected to remain subdued and increase only gradually at the end of 2013.

Very strong growth in early 2011, driven by private consumption and investment, has been curbed by credit containment policies and deteriorating global conditions. As a result, real GDP growth is projected to slow to 3% in 2012. It is set to recover in 2013 as the external environment improves. The sharp exchange rate depreciation in 2011 should gradually help rebalance domestic and external demand and narrow the large current account deficit, which by mid-2011 approached 10% of GDP. On the other hand, it may also put upward pressure on already high inflation.