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The Organisation for Economic Cooperation and Development (OECD) contends that the outlook for world economic growth appears “significantly better than a few months ago” with emerging market economies, including China and India, underpinning the global recovery.
In its interim assessment released in Paris today, the inter-governmental think-tank of the rich countries said growth in the traditional G-7 economies (the US, the UK, France, Germany, Italy, Canada and Japan) outside Japan appears to be ‘stronger than previously projected with accelerating private sector investment and trade boosting recovery”. Economic growth in the G-7 economies outside Japan could rise to an annualised rate of about 3 per cent in the first half of 2011, it said.
It said growth perspectives are higher across the OECD area and the recovery is becoming self-sustained, which meant there would be “less need for fiscal or monetary policy support”. As the quake in Japan casts uncertainty over the near-term outlook, the interim assessment contains no projections for Japan.
Unemployment problem
Stating that unemployment remains problematic, it said the OECD-wide unemployment rate remains two percentage points higher than at the onset of the crisis a couple of years ago. Inflationary expectations have been creeping upwards, driven by rising commodity prices, but underlying inflation rates are still low, reflecting the large excess capacity that remains in labour and product markets.
While instability in the West Asian region and North Africa and an associated possible further increase in oil prices could act as a drag on economic activity in the near term, OECD said uncertainty stemming from sovereign debt risks in the euro area periphery could also prove ‘problematic'.
While making a presentation of the interim economic assessment, the OECD Chief Economist, Mr Pier Carlo Padoan, said in some OECD countries monetary policy would need to deal with a risk that inflation expectations may become unanchored. Public finances remain in distress in most OECD countries and the priority is therefore, to consolidate budgets and establish credible and growth-friendly medium-term plans, he noted.
Finally, a combination of well-targeted macro-economic and structural policies could achieve a sustained reduction in the still wide global imbalances, as well as contribute to fiscal consolidation, it said.
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