US and Japan leading fragile global recovery of growth
THE United States and Japan are leading a fragile economic recovery among developed countries that could yet be blown off course if the eurozone fails to contain its flaring growth crisis, yesterday's OECD report concludes.
The organisation forecasts that global growth will ease to 3.4pc this year from 3.6pc in 2011, before accelerating to 4.2pc in 2013, in line with its last estimates from late November.
Growth across the organisation's 34 members, generally the wealthiest in the world, is seen easing this year to 1.6pc from 1.8pc in 2011 and then reaching 2.2pc in 2013, also roughly in line with previous estimates.
"We see a slow rebound of growth in the US, driven mostly by private demand, some pick-up in Japan and moderate to strong growth in emerging economies," OECD chief economist Pier Carlo Padoan said.
"We also see flat growth in the euro area which hides important differences, with northern countries growing and southern countries in recession," he added.
The OECD forecast that the 17-member eurozone economy would shrink 0.1pc this year before posting growth of 0.9pc in 2013, though regional powerhouse Germany would chalk up growth of 1.2pc in 2012 and 2pc in 2013.
Although OECD economies are on the mend, the eurozone's debt crisis could still spiral out of control with Greece struggling to remain solvent and Spanish banks needing to be recapitalised, Mr Padoan said.
The ECB's injection of €1 trillion of liquidity into the eurozone's banking system and an increase in European bailout funds and IMF reserves had helped keep the eurozone's debt crisis from spiralling out of control.
"If the situation gets worse, there are ways to enhance the firewall capacity which could include a stronger intervention or role of the ECB," he said.
In particular, the ECB should not rule out buying government bonds again to keep borrowing costs down, lending to the ESM European bailout fund as well as cutting its main benchmark interest rate, which currently stands at 1pc. The ECB could also consider another injection of liquidity into the banking system.
In contrast to the eurozone, the US was expected to continue to benefit from easy credit conditions and ultra-loose monetary policy, with the world's biggest economy forecast to grow 2.4pc this year and 2.6pc in 2013. In November, the OECD had forecast 2pc for 2012 and 2.5pc for 2013.
Although some budget tightening and a still weak housing market would be a drag on growth, demand in the private sector would continue to strengthen as the unemployment rate declines to as low as 7.5pc by the end of 2013 from 8.1pc in April.
The OECD said that while the US needed to step up the pace of its fiscal tightening, if tax cuts were allowed to expire as scheduled in 2013 it could result in too much cutting at once and threaten growth.
Export-giant China was forecast to see growth rebound from 8.2pc this year to 9.3pc in 2013 as interest rate cuts and increased social spending propped up domestic demand in the non-OECD member country. (Reuters)