Recovery in developed economies gathers pace

Posted May 26, 2010, at 6:17 a.m.
A man walks past a facade of the Bank of England, in London's City financial district, on Tuesday, May 25, 2010.  World stock markets and the euro tumbled Tuesday on fears that Europe's debt crisis will cause a prolonged economic slump in the region and weaken the outlook for global growth. News of a bank failure in Spain and the prospect of more painful austerity measures across the region renewed investors' worries about growth in Europe and its impact on major trading partners like the U.S., Japan and China. (AP Photo/Lefteris Pitarakis)
AP
A man walks past a facade of the Bank of England, in London's City financial district, on Tuesday, May 25, 2010. World stock markets and the euro tumbled Tuesday on fears that Europe's debt crisis will cause a prolonged economic slump in the region and weaken the outlook for global growth. News of a bank failure in Spain and the prospect of more painful austerity measures across the region renewed investors' worries about growth in Europe and its impact on major trading partners like the U.S., Japan and China. (AP Photo/Lefteris Pitarakis)

PARIS — Economic recovery in the world’s richest countries is accelerating thanks to a “substantial” rebound in trade and growth in Asia, but Europe’s debt crisis proves that bailouts worth trillions of dollars have yet to stabilize the global economy, a leading agency said Wednesday.

The Organization for Economic Cooperation and Development, a watchdog for 31 of the most developed economies, said that serious risks including Europe’s sovereign debt crisis and a possible boom-bust scenario in emerging markets such as Brazil, India and China still threaten what it calls a “relatively auspicious” economic environment.

“The period of significant financial instability that began in August 2007 is not yet over,” the OECD warned in its latest biannual Economic Outlook.

The Paris-based group also raised its forecasts for economic growth in its member countries — which include the U.S., Japan, Germany and the United Kingdom — to 2.7 percent this year, up from its forecast of 1.9 percent last November.

The OECD lifted its forecasts for Japan, the U.S. and the eurozone countries, but Japan and the U.S. are still expected to outpace Europe, the report said.

The OECD publishes its economic outlook twice a year, although it updated some 2010 forecasts in an interim assessment published in April.

Europe’s response to its sovereign debt crisis — the latest chapter in the global financial and economic turmoil that began three years ago — has been “prompt and massive,” the OECD said, but has failed to settle the currency bloc’s “underlying weaknesses.”

The OECD called for “bolder measures” — up to and including an effective fiscal union — among eurozone countries in order to “dissipate doubts about the long-term viability of the monetary union.”

“Bolder measures need to be taken to ensure fiscal discipline, along a continuum that ranges from stronger surveillance and more effective sanctions for noncompliance, to external auditing of national budgets all the way to de facto fiscal union,” the OECD said.

The U.S. economy has been boosted by stimulus measures, improving financial conditions, demand from the fast-growing non-OECD economies of Asia — especially China — and the stabilization of the housing market. The OECD predicted that unemployment has peaked, but that the labor market would remain depressed for some time.

The OECD predicts the U.S. economy will expand at a rate of 3.2 percent in 2010, up from a November forecast of 2.5 percent.

In Europe, the economies of the 16 countries sharing the euro are now expected to grow by 1.2 percent this year compared to a November forecast of 0.9 percent.

Unemployment will peak at 10.1 this year in the eurozone and stay stubbornly at that level in 2011, sapping the strength of the recovery, the OECD said.

Japan’s economy will grow by 3 percent this year compared with the November forecast of 1.8 percent.

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