World heads for 4.75% growth: OECD

The global economy is heading for 4.75 per cent growth this year and next, thanks largely to emerging markets, and beating growth rates before the global downturn, the Organisation for Economic Cooperation and Development (OECD) said yesterday.

Growth in the 30 OECD industrialised economies is expected to be far lower, at 2.70 per cent, although higher than the last forecast in November of 2.50 per cent.

But the Paris-based organisation, a policy research forum for industrialised countries, warned in upgraded forecasts that the debt crisis in Europe and overheating in emerging markets could endanger the global recovery.

The OECD?also said that global imbalances – meaning mainly huge trade surpluses in some emerging economies and a deficit in the United States – are widening again. These imbalances are widely seen as a main cause of the global economic crisis.

"Growth is picking up in the OECD area – at different speeds across regions – and at a faster pace than expected in the previous Economic Outlook," the OECD said in a twice-yearly report on the global economy. "Global output growth is expected to be around 4.75 per cent this year and in 2011, above the growth rate experienced in the decade prior to the onset of the crisis."

The OECD raised its forecast for output growth in the United States this year to 3.2 per cent from its November forecast of 2.5 per cent.

It also increased the outlook for Japan to 3.0 per cent from 1.8 per cent and for the 16-nation euro zone to 1.2 per cent from 0.9 per cent.

But it warned that "risks to the global recovery could be higher now, given the speed and magnitude of capital inflows in emerging-market economies and instability in sovereign debt markets.

"Overheating in emerging-market economies... poses a serious risk. A boom-bust scenario cannot be ruled out," it added.

Countries such as China and India, it said, may need "much stronger" monetary tightening to counter inflation and cut the risk of asset price bubbles.

The report also called on OECD governments to now start withdrawing fiscal stimulus plans put in place during the economic crisis, cautioning that "urgent" action was needed in order to curb spiralling government debt levels.

"Exit from exceptional fiscal support must start now, or by 2011 at the latest.... Many countries are facing very unfavourable government debt dynamics" that could act as a drag on economic growth, it said.

It warned that debt levels in OECD countries would increase by 18 percentage points of GDP from 2012 onwards before stabilising even taking into account measures to cut spending.

Referring to the euro zone's debt problems, it said that procedures need to be reinforced in order to prevent another crisis and warned that the turmoil could bring down private sector borrowing rates and activity. Global imbalances are also continuing to rise, the OECD said, using figures showing that the current account balance deficit in the United States would widen from 2.9 per cent of GDP in 2009 to a deficit of 3.8 per cent this year.

The OECD average is set to rise to minus 0.8 per cent from minus 0.7 per cent.

The report added that banks in OECD countries remain "vulnerable" because of the continued effects of the global economic crisis and increased risks as a result of the unwinding of stimulus measures put in place by central banks.

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