OECD sees moderate recovery in developed world

The world's leading industrialised nations will witness a moderate recovery, which will not be enough to check the soaring unemployment until late next year or early 2011, the Organization for Economic Cooperation and Development (OECD) said. The combined GDP of the 30 member countries, which represent the world's largest developed economies, would grow by 1.9% in 2010, the Paris-based think tank said in its semi-annual economic outlook. OECD growth will accelerate to 2.5% in 2011. In the current year, the output is set to shrink by 3.5%. In June, OECD had forecast a growth of just 0.7% in 2010 following a contraction of 4.1% in 2009. "Overall unprecedented policy efforts appear to have succeeded in limiting the severity of the downturn and fostering a recovery to a degree that was largely unexpected even six months ago," Joergen Elmeskov, the OECD's acting head of economics, said in a preface to the report.

The OECD now expects US growth to shrink 2.5% in 2009, followed by growth of 2.5% in 2010 and 2.8% in 2011. In June, the OECD forecast a 2.8% fall this year and growth of 0.9% in 2010. Japan is forecast to contract 5.3% this year, compared to an earlier forecast for a 6.8% decline. Next year, Japan is expected to grow by 1.8%, followed by an expansion of 2% in 2011. The OECD previously forecast 2010 growth of 0.7%. The euro zone is now projected to contract 4% this year, compared to a previous forecast for a 4.8% fall. In 2010, the euro zone is seen expanding by 0.9%, compared to the OECD's previous call for flat economic growth. In 2011, the OECD expects growth of 1.7%.

"The recovery is being held back by still substantial headwinds as households, financial institutions, non-financial enterprises and, eventually, governments have to repair their balance sheets," Elmeskov said. "This also means that unemployment is set to move higher and already-low inflation will be under further downward pressure," he said. "It is only some time down the line that the recovery will become sufficiently strong to begin to reduce unemployment," he added.