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OECD sees world recovery slowing as US lags

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.

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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 percent in 2011 from 4.6 percent this year before returning to a rate of 4.6 percent in 2012.

Last May, the Paris-based organisation projected expansion of 4.6 percent in 2010 and 4.5 percent 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 percent this year, 2.2 percent in 2011 and 3.1 percent 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 percent in both 2010 and 2011.

Outlook uneven

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 percent for this year from an estimate of 2.7 percent given in May.

But it cut the outlook for next year to 2.3 percent from 2.8 percent 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 percent this year before slowing to 1.7 percent 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 percent in both 2010 and 2011 as governments tighten strained budgets and peripheral members including Greece and Ireland battle crippling debt burdens.

Risks abound

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.