Economic growth strengthening in OECD

Nia Williams

April 7, 2011

“The outlook for growth today looks significantly better than it looked a few months back,” OECD chief economist, Pier Carlo Padoan, said during a presentation of the OECD’s latest Interim Economic Assessment.

“Growth perspectives are higher all across the OECD area, and the recovery is becoming self-sustained, which means there will be less need for fiscal or monetary policy support.”

The disaster in Japan following the recent earthquake casts uncertainty over the near-term outlook, and it is still too early to determine the full cost to the economy, the OECD said. For this reason, the Interim Assessment contains no projections for Japan.

Against this background, the OECD says that economic growth in the G7 economies outside Japan could rise to an annualised rate of about 3% in the first half of 2011.

Unemployment remains problematic, with the OECD-wide unemployment rate 2 percentage points higher than at the onset of the crisis. Inflationary expectations have been creeping upwards, driven by rising commodity prices, but underlying inflation rates are still low, reflecting the large excess capacity that remains in labour and product markets.

Instability in the Middle East and North Africa and an associated possible further increase in oil prices could act as a drag on economic activity in the near term, while uncertainty stemming from sovereign debt risks in the euro area periphery could also prove problematic.

On the upside, non-financial corporate balance sheets look very healthy, which could add momentum to economic growth via private investment, and labour markets look better than expected a few months ago, which could have a favourable impact on private consumption.

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