Global economic activity will gradually pick up steam over the next two years, but the OECD says in its global Economic Outlook report that recovery will be uneven and unemployment will remain persistently high.
November 19, 2010
by PLANT STAFF
Global trade is continues to rebound, up 12.3% this year.
Photo: PLANT Stock
PARIS: Global economic activity will gradually pick up steam over the next two years, but the Organisation for Economic Co-operation and Development (OECD) says in a report that recovery will be uneven and unemployment will remain persistently high.
“As stimulus is withdrawn, governments will have to provide a credible medium-term framework, to stabilize expectations and strengthen confidence, particularly for the private sector,” said OECD secretary-general Angel Gurría. “Enhanced confidence could result in a faster-than-projected recovery.”
He noted labour market conditions have begun to improve this year in most OECD countries but unemployment, which peaked at 8.5% at the end of 2009, will remains high by the end of 2012 at 7.25%.
“With such considerable labour market slack persisting and the output gap still sizeable by the end of 2012, inflation is projected to remain muted almost everywhere in the OECD area,” he said.
Global trade continues to rebound. The Paris-based think tank reports a 12.3% increase this year, before trade eases to 8.3% in 2011 and 8.1% in 2012.
Canada’s GDP is expected to total 3% this year, decline to 2.3% in 2011, then rise to 3% in 2012. Inflation will be 1.6% this year, 1.7% next year and shift down to 1.5% in 2012. Unemployment will drop from 8.1% this year to 7.8% next year and 7.4% in 2012 while the fiscal balance is expected to improve, shifting from -4.9% to -3.4% then to -2.1.
The report says the US economy will rise by 2.2% in 2011 and then by 3.1% in 2012. Euro area growth is forecast at 1.7% in 2011 and 2% in 2012, while in Japan, GDP is expected to expand by 1.7% in 2011 and by 1.3% in 2012.
But risks to the global recovery have increased, says the report, largely because of government debt issues. Ireland has become the latest country to be engulfed by investor worries about its massive debt burden. Risks Gurría noted include:
• The possibility of renewed declines in house prices in the US and the UK cutting into households’ wealth and affecting consumption growth.
• Concerns about public debt sustainability in some OECD countries, which could disrupt financial markets and confidence.
• Growth prospects could weaken if the large capital inflows into many emerging economies and the associated tensions in foreign exchange markets prompt protectionist responses.
Among upside risks, he noted the possibility that strong corporate profits and earnings could boost business investment more than projected; household balance sheet adjustments already undertaken will allow consumption to rise more quickly than presently anticipated; and a recovered financial sector might renew its lending more rapidly than expected.
The OECD warns countries against taking unilateral action in response to exchange rate volatility, and says that international collaboration, notably within the G20, will be essential to warding off protectionism.