Thursday, the Organization for Economic Co-operation and Development sharply raised its combined growth forecast for its 30 member nations. But, the global recovery led by China is still too timid to halt the rising unemployment, the think-tank noted.
The Paris-based group said the OECD area is set to grow 1.9% next year and 2.5% in 2011. The organization upwardly revised the OECD growth forecast for 2010 from 0.7%. In 2009, the OECD area is expected to contract 3.5%.
In its latest Economic Outlook, the group said the U.S. gross domestic product is expected to grow 2.5% in 2010 and a further 2.8% in 2011. Further, the jobless rate in the world's largest economy is forecast to peak in the first half of 2010. The Federal Reserve and the Administration must begin to withdraw the economic support as economic growth becomes self-sustaining, the report said.
Growth in the second largest economy, Japan is projected to pick up gradually to around 2% in 2011. Nevertheless, the OECD forecast the unemployment rate to stay around 5.5% through 2011 and expects deflation to persist.
Euro area activity will benefit from the same growth drivers as the US, the report said. Recovery will be gradual in the Euro area due to headwinds from financial sector deleveraging and rising unemployment. The 16-nation bloc is projected to expand next year by 0.9% and by 1.7% in 2011.
In 2009, economic contraction in the U.S. and Japan is seen at 2.5% and 5.3%, respectively. At the same time, the Eurozone economy is projected to contract 4%.
For Germany, the OECD expects the improvement in activity to be relatively slow, especially through to mid-2010. The largest eurozone economy is estimated to grow 1.9% in 2011 after expanding 1.4% next year. After falling by an estimated 2.2% in 2009, French GDP is projected to grow slowly, by 1.4% in 2010 and 1.7% in 2011, led by business investment and exports.
The pick-up in the UK will be slow with the GDP projected to rise by slightly more than 1% in 2010 reflecting strong headwinds from balance sheet adjustments. After shrinking 4.7% this year, the UK economy is estimated to expand 1.2% next year and 2.2% in 2011.
OECD Secretary-General Angel Gurría said, "The good news is that the recovery - albeit a weak one - is underway. With millions of jobs lost and public budgets under strain, governments will have to tread carefully in the months ahead."
Acting Head of Economics Department, Jørgen Elmeskov noted that unprecedented policy efforts appear to have succeeded in limiting the severity of the downturn and fostering a recovery to a degree that was largely unexpected even six months ago. "It is now time to plan the exit strategy from the crisis policies, even if its implementation will be progressive," said Elmeskov.
Limited exposure to the financial crisis and huge stimulus helped China to lead the global recovery, the OECD said. The economy gained momentum in the second quarter and annual Chinese GDP growth is projected to exceed 8% in 2009 and 10% in 2010, before easing slightly in 2011. At the same time, inflationary pressures are likely to remain subdued.
With inflation clearly below policy objectives, policy interest rates of members should only be back to neutrality by the time inflationary pressures begin to be felt, said OECD. The U.S. Federal Reserve is assumed to maintain the rate until the end of 2010. The key interest rate in the euro area is expected to remain unchanged until almost the end of 2010 and that in Japan is forecast to stay at 0.1% through 2011.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.