OECD cuts global growth forecast
The Organisation for Economic Cooperation and Development cut its global growth forecast for next year, predicting a "soft spot" as stimulus spending fades before investment spurs a revival in 2012.
The global economy will expand 4.2pc next year instead of the 4.5pc predicted in May, the Paris-based organisation said today in its semi-annual Economic Outlook. Growth will recover to 4.6pc in 2012, it said.
“We have a soft patch, yes, but we don’t think it’s going to last long,” OECD Secretary General Angel Gurria said in a Bloomberg Television interview from Paris. “We’re going to recover in the second half of 2011 and have a better 2012.”
The OECD, which advises its 33 member governments on policy, said house-price declines in the US and the UK, concerns about the sustainability of sovereign debt levels elsewhere and growing trade imbalances around the world pose risks to the recovery.
Following clashes between G20 leaders last week in Seoul, the organisation warned that uncoordinated policy initiatives could hinder growth.
“There are significant risks on the downside,” OECD Chief Economist Pier Carlo Padoan wrote in the report. “Global imbalances remain wide and in some cases have started widening again, and there are rising concerns that they may threaten the recovery.”
Among the most marked slowdowns is in the US. The world’s largest economy will expand 2.7pc this year, instead of the 3.2pc previously predicted. Growth will decelerate further in 2011, when gross domestic product will increase just 2.2pc, and then pick up again with a 3.1pc gain in 2012, the OECD said.
The 16-member euro area is set to expand 1.7pc this year and next, with growth picking up to 2pc in 2012.
“The pace of recovery is likely to be muted, due to ongoing private-sector balance-sheet adjustments, necessary fiscal consolidation and prolonged adjustment to large imbalances in some countries,” the OECD said of the region.
The organisation urged the European Central Bank to support the recovery throughout next year. “Monetary policy stimulus should largely remain in place during 2011 and non-standard measures should continue to be wound down as conditions allow,” according to the report.
In Germany, output will grow 3.5pc this year and 2.5pc next year, meaning GDP will have recovered all the losses of the recession during 2011. The expansion in neighbouring France will be less robust, with GDP gaining 1.6pc in both years.
France’s “fiscal stance will need to be tight in 2011,” the OECD said. With President Nicolas Sarkozy’s increase in the retirement age passed, “cutting spending in a sustainable way while raiding long-term potential output could be achieved through reforms of health care and public administration.”
In Spain, output will probably drop 0.2pc this year before gaining 0.9pc in 2011. Portugal’s GDP will expand 1.5pc in 2010 before falling 0.2pc next year.
Portugal needs to “strictly implement” deficit-cutting plans and “promptly correct any slippages” to reduce financing costs, the OECD said.
Praise for UK
Greece’s economy will shrink 3.9pc this year and 2.7pc next year. After three years of declines, output will turn around in 2012, growing 0.5pc, the OECD predicted.
In the UK, Prime Minister David Cameron’s government won praise for plans to attack the budget shortfall. The “ambitious medium-term plan has significantly reduced fiscal risks” and may support growth in the long term, the OECD said. UK output will grow 1.8pc in 2010 and 1.7pc in 2012.
Among major developed economies, Japan will expand 3.7pc this year, 1.7pc next year and 1.3pc in 2012.
“Deflation is projected to continue, with unemployment remaining above its pre-crisis level,” the OECD said of Japan.
“With gross public debt projected to top 200pc of GDP in 2011, more ambitious consolidation than currently planned for in 2011 and 2012 would be warned. At a minimum, it would be necessary to avoid additional fiscal stimulus and contain government spending in 2011-2012.”
In Canada, where output is set to expand 3pc in 2010 and 2.3pc next year, the government should start reducing deficits and the central bank should be able to consider further interest-rate increases next year, the OECD said.
Emerging-market economies continue to lead global growth, with GDP expected to expand about 10pc both this year and next in China and about 9pc and 8pc in India, the OECD said.
While the organisation expects China’s current account surplus to stabilise at about 5.5pc of output, the government should allow the yuan to strengthen further, the OECD advised.
“The stability of the domestic economy would be enhanced if the exchange-rate policy were more oriented to allowing an appreciation against a basket of currencies,” according to the report. “In addition, government spending should continue to be reoriented to social objectives.”