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Global Growth Faster Than Expected, But Risks Also Increasing
May 26, 2010
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Economic activity in OECD countries is picking up faster than expected, but volatile sovereign debt markets and overheating in emerging-market economies present increasing risks to the recovery, according to the Organisation for Economic Co-operation and Development's latest Economic Outlook.

Gross domestic product (GDP) across OECD countries is projected to rise by 2.7% this year and by 2.8% in 2011. These are upward revisions from the November 2009 forecasts of OECD-wide GDP growth of 1.9% in 2010 and 2.5% in 2011.

In the US, activity is projected to rise by 3.2% this year and by a further 3.2% in 2011. Euro area growth is forecast at 1.2% this year and 1.8% next.

In Japan, GDP is expected to expand by 3.0% in 2010 and 2.0% in 2011.

Trade flows are rising again, and the OECD points to strong growth in China and other emerging markets helping pull other countries out of recession. At the same time, the risk of overheating and inflation is growing in emerging markets. A boom-bust scenario cannot be ruled out, requiring a further tightening in countries such as China and India.

The OECD said instability in sovereign debt markets poses another serious risk. It has highlighted the need for the euro area to strengthen its institutional and operational architecture. Bolder measures need to be taken to ensure fiscal discipline.

“This is a critical time for the world economy,” said OECD Secretary-General Angel Gurría. “Coordinated international efforts prevented the recession from becoming more severe but we continue to face huge challenges. Many OECD countries need to reconcile support to a still fragile recovery with the need to move to a more sustainable fiscal path. We also need to take into account the international spill-overs of domestic policies. Now more than ever, we need to maintain co-operation at an international level.”

With a huge debt burden weighing on many OECD countries and the strengthening recovery, the emergency fiscal measures provided by governments to tackle the crisis must be removed by 2011 at the latest, the Outlook says. It adds that the pace of such action must be appropriate to particular conditions and the state of public finances in each country.

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