Fri, Mar 30, 2012 - Page 10 News List

Eurozone is lagging behind in teetering G7 recovery: OECD

Reuters, PARIS

Eurozone nations are falling far behind the US and Canada as a fragile recovery takes root in advanced economies, the Organisation of Economic Co-operation and Development (OECD) said yesterday, advising central banks to keep easy money flowing so the rebound does not prove short-lived.

The Paris-based OECD forecast that the G7 advanced economies were on course for average annualized growth of 1.9 percent in both the first and second quarters, although rates varied widely.

An improving US labor market would help the world’s biggest economy grow 2.9 percent in the first quarter on the same basis, and 2.8 percent in the second quarter, the OECD said.

Its latest predictions were contained in a brief report in which it gives quarterly estimates for a handful of countries ahead of a fuller publication in May. The report was broadly more optimistic than a previous one.

As unemployment fell in the US, confidence was firming, particularly among households, while easy financial conditions were helping them rebuild their strained budgets, the OECD said.

“Monetary policy needs to be supportive in the medium term to allow this process to continue,” OECD chief economist Pier Carlo Padoan told journalists.

With the eurozone creeping out of a sovereign debt crisis, the recovery would be weakest there, with the economies of France and Italy in contraction in the first quarter and Germany eking out growth of only 0.1 percent.

Grappling with weak industrial production and fragile household confidence, Italy would be mired in recession as its economy contracted an annualized 1.6 percent in the first quarter and 0.1 percent in the second quarter, the OECD estimated.

Organisation of Economic Co-operation and Development Secretary-General Angel Gurria called on Tuesday for eurozone nations to ramp up the size of their rescue fund, judging that the debt crisis was not over, with banks still weak, debt still rising and fiscal targets far from assured.

Outside the eurozone, Britain’s economy was seen contracting an annualized 0.4 percent in the first quarter before posting growth of 0.5 percent in the following quarter.

In light of the still shaky nature of the recovery, the OECD said that central banks should be prepared to keep interest rates low and maintain other crisis measures “for a considerable time to come.”

With their balance sheets loaded up to record levels, the European Central Bank and the US Federal Reserve are facing growing calls to consider unwinding the unconventional measures they have adopted in the last three years to stave off financial meltdowns.

Among risks to the overall outlook, the OECD estimated that surging oil prices, which have risen 15 percent since the start of the year, would add a quarter of a percentage point to inflation in developed countries and knock between 0.1 and 0.2 percent off growth on average over the next year.

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