OECD finds global recovery firmly underway, but surrounded by risks

[News_Editor]

OECD finds global recovery firmly underway, but surrounded by risks

2011-05-25 16:32:21 GMT+7 (ICT)

PARIS (BNO NEWS) -- The Organization for Economic Co-operation and Development (OECD) on Wednesday said that the global recovery is 'firmly under way', but is taking place at different speeds across countries and regions.

The OECD made the statements based on its Economic Outlook, which notes that historically high unemployment remains among the most pressing legacies of the financial crisis. It should prompt countries to improve labor market policies that boost job creation and prevent high joblessness from becoming permanent, the report said.

World gross domestic product (GDP) is projected to increase by 4.2 percent this year and by 4.6 percent in 2012, according to the OECD. Across OECD countries the GDP is projected to rise by 2.3 percent this year and by 2.8 percent in 2012, in line with the previous forecasts of November 2010.

In the United States, activity is projected to rise by 2.6 percent this year and by a further 3.1 percent in 2012. Euro area growth is forecast at 2 percent this year and next, while in quake and tsunami-hit Japan, GDP is expected to contract by 0.9 percent in 2011 and expand by 2.2 percent in 2012.

The OECD said recovery is globally becoming self-sustained, with trade and investment gradually replacing fiscal and monetary stimulus as the principal drivers of economic growth. Confidence is increasing, which could add further buoyancy to private sector activity, the OECD said.

But the organization cautions that there are a number of downside risks, including the possibility of further increases in oil and commodity prices, which could feed into core inflation. Other risks include a stronger-than-projected slowdown in China, the unsettled fiscal situation in the United States and Japan, and renewed weakness in housing markets in many OECD countries. Financial vulnerabilities remain in the euro area, in spite of strong adjustment efforts underway in some countries.

"This is a delicate moment for the global economy, and the crisis is not over until our economies are creating enough jobs again," said OECD Secretary-General Angel Gurría. "There is also some concern that if downside risks reinforce each other, their cumulative impact could weaken the recovery significantly, possibly triggering stagflation in some advanced economies."

According to the OECD, the top challenge facing countries continues to be dealing with widespread unemployment, which affects more than 50 million people in the OECD area. It said governments must ensure that employment services and training programs actually match the unemployed to jobs and should also re-balance employment protection towards temporary workers, consider reducing taxes on labor via targeted subsidies for low paid jobs, and promote work-sharing arrangements that can minimize employment losses during downturns.

Stronger competition in retail trade and professional service sectors could also lead to greater job creation, and should be considered as part of wider structural reform programs in advanced and emerging economies alike, the OECD said.

In advanced economies, the OECD said, structural reforms can play a greater in role in boosting growth as governments are forced to withdraw fiscal and monetary stimulus launched in reaction to the crisis.

In emerging-market economies, structural reforms have the potential for making growth more sustainable and inclusive, while contributing to global re-balancing and enhancing long-term capital flows, the OECD said.

Emerging economies must also pay particular attention to the danger of overheating, which is increasing inflationary pressures, and in some cases, widening current account imbalances, the organization said.

Finally, the OECD said countries must also make progress toward their fiscal consolidation goals, which are increasingly urgent. Government debt is set to rise to close to 96 percent of GDP average in the euro area this year and to just above 100 percent of GDP in the OECD as a whole. This is about 30 percentage points above the pre-crisis level. "High public debt levels, which have been shown to have a negative impact on growth, must be stabilized and then reduced as soon as possible, especially if one considers the likely impact of ageing in the next few decades," Gurría said.

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