Recovery faster than expected

09:08, May 27, 2010      

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The global economy is recovering faster than expected with Asia leading the way, but it is at risk from huge debts in developed countries and possible overheating in emerging markets, the OECD said Wednesday.

In a twice-yearly report, the Paris-based Organisation for Economic Co-operation and Development (OECD) raised its forecast for global growth to 4.6 percent in 2010 and 4.5 percent in 2011.

Last November it predicted growth of 3.4 percent this year and 3.7 percent in 2011, after a 0.9 percent contraction in 2009.

It was also far more optimistic about job markets globally, saying unemployment in its 31 member countries may have peaked at around 8.5 percent - much lower than its previous prediction of almost 10 percent.

The new forecasts are higher than the average annual rate of growth in the decade before the financial crisis that spilled out of the United States in 2007 - an average of 3.7 percent per annum over 1997-2006, but the OECD said the bounce was uneven and risk-prone.

Developed economies where the 2009 recession exacted the biggest toll were getting a lift from resurgent international trade, propelled primarily by export demand from rising economies in Asia, the OECD said.

The recovery is widely attributed to rapid application of the lessons of that crisis and massive stimulus from governments and central banks, and from the International Monetary Fund.

Growth in the 30 OECD industrialized economies is expected to be far lower than for the world as a whole, at 2.7 percent, although higher than the last forecast in November of 2.5 percent.

The biggest challenge advanced economies face right now is cutting post-recession debts and containing financial market instability that has spread recently from Europe.

"We have been accused of being a little schizophrenic," OECD secretary general Angel Gurria said, referring to the need to maintain recovery while also cutting crisis stimulus and public deficits.

"We are trying to do both things at the same time ... Fiscal consolidation is imperative for many countries. It is also to lay the groundwork for sustained growth in the longer term."

After a debt crisis that spread from Greece to spark broader financial market turmoil over perceived debt default risks, the eurozone is accelerating austerity plans such as cuts in public wages and spending.

The recent weakening of the euro should offset some of the effects of austerity measures on growth by lifting exports, and the region should avoid a relapse into recession, OECD chief economist Pier Carlo Padoan told Reuters.

Meanwhile, the OECD highlighted a very different threat to emerging market economies, saying, "A boom-bust scenario cannot be ruled out, requiring a much stronger tightening of monetary policy in some non- OECD countries ... to counter inflationary pressures and reduce the risk of asset-price bubbles."

Source: Global Times


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