OECD points to “tepid” recovery in member countries
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The pace of economic recovery is being held back by households and businesses repairing their finances and reducing their debts, says the Organisation for Economic Development and Co-operation (OECD).
According to its Economic Outlook published today, recovery is “tepid” because businesses and individuals are rebuilding their balance sheets, which is inhibiting economic activity.
With a subdued recovery and substantial spare capacity, the OECD projects that inflation will continue to fall well into 2010.
The OECD projects that inflation will continue to fall well into 2010
Meanwhile, America’s jobless rate is likely to peak in the first half of next year, whereas in the eurozone it may not be until 2011 that unemployment begins to fall.
“The economic recovery now spreading across OECD countries is still too timid to halt the continuing rise in unemployment,” the report says.
As China has had limited direct exposure to the financial crisis and scope to boost its economy with a massive stimulus package, it is likely to lead the global recovery.
Both America and Europe will grow as stimulus measures kick in and demand from large emerging markets picks up. The OECD predicts America’s economy will grow by 2.5% in 2010 and a further 2.8% in 2011. The eurozone economy is projected to grow by 0.9% next year and by 1.7% in 2011.
While the OECD expects Japan to benefit from strong growth in the rest if Asia, weak domestic demand is expected to limit activity and deflation will persist. Growth rates for Japan are forecast to be 1.8% next year and 2% in the year after.
“Removing stimulus measures is imperative, but such action has to be carried out gradually”
Angel Gurría
“With millions of jobs lost and public budgets under strain, governments will have to tread carefully in the months ahead,” says Angel Gurría, the secretary general.
“Removing stimulus measures is imperative, but such action has to be carried out gradually to avoid undermining the recovery.”
Jorgen Elmeskov, the acting chief economist, says it is time “to plan the exit strategy from the crisis policies”. However, he says spending cuts or tax increases should not be carried out in a way that would weaken the recovery.
As governments have accumulated large amounts of debt, Elmeskov estimates that the gross debt of most countries in the region could be larger than their GDP by 2011.
