The Hindu Business Line : Storm over outsourcing may weaken soon: OECD

THE Organisation for Economic Co-operation and Development (OECD) is optimistic that "controversies about the negative role of job offshoring should subside and take a less emotional turn as the spectre of a persistently jobless recovery recedes" in the rich world.

In its biannual world economic outlook, released in Paris today, the inter-Governmental thinktank of 30 rich industrial countries said that with the slump of business investment now well over, the world economy is experiencing a strong and sustainable recovery. Asia remains buoyant with China close to overheating and Japan enjoying a much stronger and broader recovery than expected.

Despite lingering worries, it seems likely that in the United States, labour too would share in recovery, the Outlook said. "Although it brings pain and at times social dislocation in some parts of the economy, offshoring remains of smallish dimension in comparison with the global job turnover of the US economy and appropriate public policies can do a lot to ease the burden of those who lose their work through rapid economic change," it noted in a reference to the outsourcing outcry currently doing the rounds in the US.

Pointing out that the return to stronger job creation in the US and the OECD at large should help contain pressures for more protectionist measures, the report hoped that this would provide "a more favourable background for the advancement of the Doha round" of multilateral trade talks that broke down last September with the collapse of the Cancun Ministerial of the WTO.

While become broader-based, the world economic recovery should also benefit from continued price stability, OECD said, adding that despite recent increases in oil and commodity prices, inflationary pressures should remain relatively subdued over the next few quarters against the backdrop of the substantial economic slack that remains in many OECD regions.

The report said the world recovery has achieved enough of a momentum to start pulling European economies out of their domestic anaemia, provided a modicum of exchange rate stability prevails in the months to come. Conversely, growth in the US and China should moderate somewhat as monetary stimulus is progressively withdrawn by central banks.

Even as it depicts a relatively smooth scenario, the OECD hedges itself pronouncements with a number of risks. Chief among them is the risk of the world recovery lingering even more polarised than expected. Some OECD countries could well expand too fast for lack of appropriate withdrawal of policy stimulus while others might remain mired in "a low activity-low confidence" trap. Such cumulative divergences would in turn worsen current account imbalances and financial uncertainties, it warned.

The report noted that persistent growth of divergence and worsening current account imbalances could lead to further bumpy readjustments of exchange rates. This could be costly for Japan and Europe at a time when macro-economic policies have little margin for manoeuvre left to offset the negative results of further dollar depreciation, it cautioned. Hopefully, it said, more decisive fiscal retrenchment in the US and more robust domestic demand in Europe and Japan would bring about a less disruptive rebalancing of current accounts than one solely driven by exchange rates.