Global recovery firmly underway but surrounded by risks
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Paris, May 25, 2011 - The global recovery is firmly under way, but is taking place at different speeds across countries
and regions, according to the OECD’s latest Economic Outlook.
Historically high unemployment remains among the most pressing legacies of the crisis. It should prompt countries to
improve labour market policies that boost job creation and prevent today’s high joblessness from becoming permanent, the
report said.
World gross domestic product (GDP) is projected to increase by 4.2% this year and by 4.6% in 2012. Across OECD countries
GDP is projected to rise by 23% this year and by 2.8% in 2012, in line with the previous forecasts of November 2010.
In the US, activity is projected to rise by 2.6% this year and by a further 3.1% in 2012. Euro area growth is forecast
at 2% this year and next, while in Japan, GDP is expected to contract by 0.9% in 2011 and expand by 2.2% in 2012.
The recovery is becoming self-sustained, with trade and investment gradually replacing fiscal and monetary stimulus as
the prinicipal drivers of economic growth. Confidence is increasing, which could add further buoyancy to private sector
activity, the OECD said.
But there are downside risks, including the possibility of further increases in oil and commodity prices, which could
feed into core inflation; a stronger-than-projected slowdown in China; the unsettled fiscal situation in the United
States and Japan; and renewed weakness in housing markets in many OECD countries. Financial vulnerabilities remain in
the euro area, in spite of strong adjustment efforts underway in some countries.
“This is a delicate moment for the global economy, and the crisis is not over until our economies are creating enough
jobs again,” said OECD Secretary-General Angel Gurría. “There is also some concern that if downside risks reinforce each
other, their cumulative impact could weaken the recovery significantly, possibly triggering stagflation in some advanced
economies.”
The top challenge facing countries continues to be dealing with widespread unemployment, which affects more than 50
million people in the OECD area. Governments must ensure that employment services and training programmes actually match
the unemployed to jobs. They should also rebalance employment protection towards temporary workers; consider reducing
taxes on labour via targeted subsidies for low paid jobs; and promote work-sharing arrangements that can minimise
employment losses during downturns.
Stronger competition in retail trade and professional service sectors could also lead to greater job creation, and
should be considered as part of wider structural reform programmes in advanced and emerging economies alike, the OECD
says.
In advanced economies structural reforms can play a greater in role in boosting growth as governments are forced to
withdraw fiscal and monetary stimulus launched in reaction to the crisis.
In emerging-market economies, structural reforms have the potential for making growth more sustainable and inclusive,
while contributing to global rebalancing and enhancing long-term capital flows, the OECD said.
Emerging economies must also pay particular attention to the danger of overheating, which is increasing inflationary
pressures, and in some cases, widening current account imbalances.
Countries must also make progress toward their fiscal consolidation goals, which are increasingly urgent. Government
debt is set to rise to close to 96% of GDP average in the euro area this year and to just above 100% of GDP in the OECD
as a whole. This is about 30 percentage points above the pre-crisis level. “High public debt levels, which have been
shown to have a negative impact on growth, must be stabilised and then reduced as soon as possible, especially if one
considers the likely impact of ageing in the next few decades,” Mr Gurría said.
For more information on OECD Economic Outlook 89, visit: www.oecd.org/oecdeconomicoutlook.
ENDS