OECD predicts ‘early but weak’ recovery

The global recovery will be weak but earlier than expected, whilst British economic growth will continue to slow through 2009, the Organisation for Economic Cooperation and Development (OECD) reported today.

Britain was the only G7 economy for which the OECD’s growth forecast worsened.

The OECD estimates that British growth will fall by 4.7% in 2009, compared with its forecast of a 4.3% contraction in June.

The overall forecast growth for the G7 economies is now a fall of 3.7%, from a 4.1% decline predicted in June.

The greatest improvements were in the eurozone and Japan. The OECD now expects eurozone growth, supported by strong recovery in France and Germany, to fall by 3.9% compared with earlier estimates of 4.8%.

Growth forecasts for Japan were revised upwards by over 1%, from a contraction of 6.8% to 5.6%.

The OECD said that positive economic news over recent months helped indicate an earlier recovery.

It highlighted an improvement in overall financial conditions, signs of stability in the British and American housing markets and a recovery in large emerging market economies. These include a 14% GDP growth in China, and potential acceleration in global trade as favourable indicators of growth.

However, the OECD said that spare capacity, high and rising unemployment, low profitability and limited growth in labour income, coupled with ongoing correction in housing markets, would continue to moderate demand.

It said whilst falling commodity prices and spare capacity had led to low headline inflation in all major economies, the recent rebound in commodity prices meant that the risk of sustained deflation was small outside Japan.

The OECD said the weak recovery means interest rates are unlikely to rise until mid-2010 and beyond.

It added that whilst prospects of an earlier recovery lessened the likelihood of further fiscal stimulus, countries needed to begin to prepare for the removal of the strong support offered by current monetary and fiscal policy.


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