A moderate recovery is under way in the major advanced economies, according to the latest Interim Economic Assessment by the Organisation for Economic Cooperation and Development. Growth is proceeding at encouraging rates in North America, Japan and the U.K. Meanwhile, the euro area as a whole is no longer in a recession, although output remains weak in several countries.
However, growth has slowed in some of the large emerging economies. One factor has been a rise in global bond yields – triggered in part by an expected scaling back of the U.S. Federal Reserve’s quantitative easing, which has fueled market instability and capital outflows in several major emerging economies, such as India and Indonesia.
Given their large share of the world economy, the slowdown in the emerging economies points to sluggish near-term growth globally, despite the pick-up in the advanced economies.
Economic growth in the major advanced economies is expected to continue at a similar pace during the second half of 2013 as in the second quarter. In the three largest OECD economies – the U.S., Japan and Germany – activity is expected to expand by about 2.5 percent annualized in the third and fourth quarters. France is forecast to grow by about 1.5 percent annualized in the second half of the year, while in Italy growth is expected to remain slightly negative.
GDP growth in China is forecast to pick up to about 8 percent by the final quarter, after a slowdown in the first half of 2013. But even that would represent a slower rate than in recent years, the OECD said.
Presenting the assessment in Paris, OECD Deputy Chief Economist Jorgen Elmeskov said the gradual pick up in momentum in the advanced economies is encouraging, but a sustainable recovery is not yet firmly established.
“Major risks remain,” Mr. Elmeskov said. “The euro area is still vulnerable to renewed financial markets, banking and sovereign debt tensions. High levels of debt in some emerging markets have increased their vulnerability to financial shocks. And a renewal of brinkmanship over fiscal policy in the U.S. could weaken confidence and trigger new episodes of financial turmoil.”
He added that continued support for demand is still needed to make sure recovery takes hold. Moreover, structural reforms are vital to boost growth, rebalance the global economy and avoid a ratcheting up of structural unemployment.
Tackling high unemployment must be a key focus of government action, the OECD said. Unemployment rates are far above pre-crisis levels at around 12 percent in the euro area and 7.5 percent in the United States.
To avoid high rates getting entrenched even as a recovery takes hold, governments must implement effective training and activation policies, backed by support for stronger demand, the OECD said. Reforming tax-benefit systems should improve work incentives, while targeted measures are needed for vulnerable groups, such as jobless young people outside the training and education system.
Public finances have been improving in most advanced economies, with the exception of Japan, but fiscal consolidation policies must continue, the Interim Economic Assessment noted.
However, such policies need to be better designed to protect the most vulnerable in society, to build public support for necessary structural reforms and to prioritize spending to help get people back to work.