Global Crisis

O.E.C.D. Sees Global Recovery Slowing

Posted on Friday, November 19, 2010

PARIS — Global growth prospects have clouded recently as a result of regional imbalances, persistently high unemployment and the failure of private consumption to pick up the slack created by the withdrawal of government stimulus, the Organization for Economic Cooperation and Development said Thursday.
“The recovery’s under way, but it’s going slower than expected a few months back — it’s also uneven,” said the organization’s chief economist, Pier Carlo Padoan.
The Paris-based agency forecast in a twice-yearly report that growth among its 33 members, mostly developed countries, would reach 2.7 percent this year, moderate to 2.3 percent in 2011 and then bounce back to 2.8 percent in 2012.
In its previous forecast in May, the organization projected an expansion of 2.7 percent this year and 2.8 percent in 2011.
“Uneven growth within the O.E.C.D. area, as well as between the O.E.C.D. and emerging economies, will add to global imbalances, which are among the most significant threats to the recovery,” the organization said.
The report highlighted other risks that could derail the recovery, including the potential for renewed and prolonged drops in real estate prices, most notably in the United States and Britain; the sovereign debt crisis in some European countries; and possible abrupt reversals in government bond yields.
With economic growth picking up only modestly, prospects for strong employment growth “appear limited,” it added.
The organization warned countries against taking “unilateral action” in response to recent exchange-rate volatility and patterns in capital flows, which have been shifting to emerging markets for higher returns. International collaboration would be essential to ward off protectionism, it added.
The main emerging markets are likely to grow at a “slightly lower, and more sustainable, pace” than has been the case, the report said. Still, these rates will remain much higher than in the O.E.C.D. as a whole and will help lift global trade growth to more than 8 percent annually in 2011 and 2012.
The O.E.C.D. said that world growth would slow to 4.2 percent in 2011 from 4.6 percent this year, and then return to 4.6 percent in 2012. That was also a slight downgrade from its last assessment.
In the United States, growth was projected to rise to 2.2 percent in 2011 and then to 3.1 percent in 2012. For the euro zone, growth was forecast at 1.7 percent in 2011 and 2 percent the year after, while in Japan, gross domestic product was forecast to expand 1.7 percent in 2011 and 1.3 percent in 2012.
Mr. Padoan said the Federal Reserve’s policy of making huge purchases of financial assets, known as quantitative easing, was likely to be less effective the longer it lasted. But the chances that the United States will enter a prolonged period of deflation appear limited, he added.
He said he was “moderately optimistic” that the euro zone might have gotten through the worst of its debt crisis.
“Paradoxically, Europe appears stronger” as a result of recent events, he said, arguing that the crisis had led to the creation of new financial structures and was likely to bring political overhauls, including a tighter surveillance of national budgets by European Union officials in Brussels.


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