Economy - OECD predictions

Economies grow, debt spending must end by 2010, says OECD

Article published on the 2009-11-19 Latest update 2009-11-19 11:28 TU

Annualised quarterly real GDP growth for OECD and non-OECD countries
(Source: OECD Economic Outlook 86 database)

The Organisation for Economic Cooperation and Development (OECD) predicts global economic activity will be back to normal within 25 months. In its bi-annual report released Thursday, the Paris-based grouping of 30 of the world's richest nations predicted uneven economic recovery, but warned of rising national debts from continued stimulus spending.

"The upturn in the major non-OECD countries, especially in Asia and particularly in China, is now a well established source of strength for the more feeble OECD recovery,” said the report, which predicts an uneven, unsteady and unpredictable recovery, with rising unemployment.

It forecasts Japan’s economy to grow by 1.8 and then 2.0 per cent in the next two years, up from a 5.3 per cent recession this year. The US economy will grow 2.5 per cent next year, and 2.8 per cent in 2011, up from a 2.5 per cent recession this year.

The 16-nation eurozone is not recovering as quickly.

"The sharp contraction in euro area activity appears to have ended sooner than anticipated,” said the report, though warning that the recovery will be gradual due to “headwinds from financial sector deleveraging and rising unemployment.”

The OECD predicted the unemployment rate to rise to 10.6 per cent next year and 10.8 per cent in 2011, up from 9.4 per cent this year.

France’s GDP is projected to grow by 1.4 per cent in 2010 and 1.7 per cent in 2011, which will not be enough to keep the unemployment rate from rising through the beginning of 2011.

“A mix of appropriate discretionary measures and automatic stabilisers has cushioned the impact of the crisis,” says the report

The predictions of growth - or at least a halt in recessions - do not mean countries are off the hook, though.

Governments must start withdrawing stimulus measures by late 2010, warns the report, pointing the finger at half of the 30 OECD countries that have no clear targets for reducing budget deficits.

"It is regrettable that so few exit strategies have so far been articulated," it said, adding that “stopping the rot” of rising debt is necessary.

"Government budgets have suffered badly from the crisis and gross debt could exceed gross domestic product on average in the OECD by the year after next."

Once economies are back on track, countries face the threat low consumer activity, high unemployment, and asset inflation due to the increase in stimulus spending.