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OECD sees world recovery slowing

PARIS — The global economic recovery is shifting down a gear as the US economy rebounds less quickly than expected and growth in emerging countries moderates, the OECD said on Thursday.

In its twice-yearly report, the Paris-based Organisation for Economic Co-operation and Development said several factors suggested that outlook might be downgraded further, citing among others global currency tensions and a possible debt crisis in Europe.

It forecast world growth would slow to 4.2 per cent in 2011 from 4.6 per cent this year before returning to a rate of 4.6 per cent in 2012.

Last May, the Paris-based organisation projected expansion of 4.6 per cent in 2010 and 4.5 per cent in 2011. It did not give a forecast then for 2012.

“We see the recovery ongoing but at a somewhat slower pace,” OECD chief economist Pier Carlo Padoan told Reuters in an interview.

The OECD cut its forecast for US growth to 2.7 per cent this year, 2.2 per cent in 2011 and 3.1 per cent in 2012.

In May, it had estimated that growth in the world’s biggest economy would bounce back from a dire recession in 2009 to grow 3.2 per cent in both 2010 and 2011. While the economic outlook for the 33 wealthy, industrialised countries belonging to the OECD varied widely, the organisation raised slightly its growth forecast for the group to 2.8 per cent for this year from an estimate of 2.7 per cent given in May.

But it cut the outlook for next year to 2.3 per cent from 2.8 per cent previously and forecast the bloc would only see growth rebound to the latter rate in 2012.

Padoan said that growth was moderating as governments shifted their focus from exceptional measures to stimulate their economies to tackling big budget deficits that built up in many countries during the economic crisis.

“The boost that the global economy has received from the uptick in trade is still there but slowing down,” Padoan added. While growth rates in fast-growing major emerging economies were easing to more sustainable levels, the OECD saw them continuing to provide a boost to the global economy.

The organisation lifted it forecasts for Japan’s growth, estimating its economy would surge 3.7 per cent this year before slowing to 1.7 per cent next year as the impact of two new fiscal packages faded. The OECD estimated that the 16-nation euro zone economy would grow 1.7 per cent in both 2010 and 2011 as governments tighten strained budgets and peripheral members including Greece and Ireland battle crippling debt burdens. The OECD warned that the outlook was rife with risks ranging from a possible sovereign debt crisis in Europe, renewed house price declines in the United States and Britain, foreign exchange market tensions and a sharp unexpected upward snap in government bond yields.

Padoan urged Ireland’s EU partners to help the country deal with its debt crisis, which has flared just months after Greece came close to defaulting on its debts, prompting questions about the future of the euro zone.

“Debt situations are dynamic in nature. You have to ask where am I going and we have to recognise that Ireland needs to be steered in the right direction and there is some time to do that but not infinite time,” he said.

The OECD also said that the risk of deflation in most countries was low but not completely gone, possibly warranting central bank action to buy government bonds if the situation worsened.

But while risks to the economic outlook were tilted to the downside, stock market gains fuelled by strong corporate profits might provide a boost to the broader economy, the
 OECD said. —