Recovery may come earlier and stronger than forecast, says chief economist
(PARIS) The global recession is coming to an end faster than thought just a few months ago and may already be over, according to forecasts published by the Organisation for Economic Co-operation and Development (OECD) yesterday.
The recovery may even prove a little stronger than previously predicted, OECD chief economist Jorgen Elmeskov said, elaborating on the forecasts for several key economies.
'Compared with expectations a few months ago, we now have a recovery which ... may be coming a little earlier and it may be slightly stronger because financial conditions have improved more rapidly than we assumed a few months ago,' Mr Elmeskov said.
The OECD forecasts show a third-quarter return to expansion of economic output, as measured by gross domestic product, in the United States and the 16-country euro zone, led by its two largest economies, Germany and France.
The forecasts showed an annualised expansion of 1.6 per cent in the United States in the third quarter, 0.3 per cent in the euro zone and 1.1 per cent in Japan, and were generally more optimistic than the last update in June.
The pickup that started with a 'quite dramatic turnaround' in China and other Asian emerging market economies in the second quarter remained heavily dependent on government stimulus and ultra-low interest rates across the world, Mr Elmeskov said.
While it predicted continued third-quarter contractions in Britain and Italy, and a rise followed by a fourth-quarter dip for Japan, the OECD said the broad picture for the G-7 group of industrialised powers was better.
The forecasts, including information up to Sept 2, show the euro area turning positive in both of the last two quarters of 2009 after five straight quarters of contraction.
In June, it predicted quarter-on-quarter shrinkage of 1.1 and 0.5 per cent respectively in the third and fourth quarters on an annualised basis. It now expects 2 per cent growth in the fourth quarter. The previous forecasts for the United States had been zero and 0.5 per cent - now upped to 1.6 per cent and 2.4 per cent respectively.
The OECD is still predicting GDP contractions for 2009 as a whole across the G-7 group, primarily because of a particularly bad first half, despite the improvement now in the pipeline.
But it sees annualised GDP rises of 1.2 and 1.4 per cent in the third and fourth quarters for the G-7 as a whole, also signalling an exit from recession at that level.
The report said that while authorities needed to map out a strategy for withdrawal of fiscal and monetary stimulus once recovery was surer, now was no time to take the economy off life support, either in terms of government spending or shifts to higher official interest rates.
'Substantial slack combined with the prospect for a weak recovery implies that strong policy stimulus will continue to be needed in the near term,' it said.
'Regarding monetary policy, taking the first steps towards normalisation of policy interest rates from their current exceptionally low levels should in most cases wait until well into 2010 and in some cases even beyond,' the OECD said.
Back in June, the OECD said interest rates should stay on hold in all major economies through all of 2010.
Mr Elmeskov acknowledged that this recommendation was no longer quite so categorical but said the bottom line was that rates needed to stay very low in the euro zone, United States and beyond for the large part of next year.
As for fiscal stimulus, governments needed to roll out all of the measures they had already announced after foot-dragging by some, said Mr Elmeskov. That, one OECD official said, referred mainly to Germany and the United States.
Mr Elmeskov said the OECD, which is due to issue a fuller set of forecast updates in November, also said that the 16 per cent drop in global trade volume it predicted for this year in June would probably turn out to be less steep, due in part to rising import demand from Asia for goods from OECD countries.
'Our estimates suggest that in the second quarter China may have grown at 14 per cent annualised rate,' Mr Elmeskov said.
'Similarly, the growth rates of other non-OECD East Asia and South-east Asian countries may on average have been around 10 per cent on an annualised rate.' - Reuters
Source: Business Times, 4 Sep 2009