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Growth to pick up in OECD countries

The latest OECD Economic Outlook says that GDP is projected to rise by 2.7% this year and 2.8% in 2011, across the OECD countries. Previous forecasts last November expected growth this year to by only 1.9% and 2.5% next year.

Whilst economic activity is picking up faster than expected, the OECD warned that sovereign debt markets and overheating in emerging-market economies are presenting increasing risks to recovery.

The latest projections are shown below.

GDP projections (% change from previous year) Source: OECD

The US is expected to see a rise in GDP of 3.2% this year and a further 3.2% in 2011, whilst the Euro areas is only forecast to increase by 1.2% this year and 1.8% next. Japan is expected to expand by 3.0% in 2010 and by 2.0% in 2011.

“This is a critical time for the world economy,” said OECD Secretary-General Angel Gurria. He went on to say that: “Many OECD countries need to reconcile support to a still fragile recovery with the need to move to a more sustainable fiscal path.”

The OECD says that given the strengthening recovery and the huge overhanging debt burden, the emergency fiscal measures which governments used to tackle the crisis need to be removed by 2011 at the latest. However, it does add that the pace of such action must be appropriate to particular conditions and the state of public finances in each country.

It also says that as budgets are being tightened, growth needs to be supported by linking macroeconomic, financial and structural policies. Spending cuts or tax rises should focus on areas that are least harmful to growth, adding that the reform of product and labour markets to enhance competitiveness must also be part of the strategy.

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Posted in economic growth, Fiscal stimulus, government borrowing, government spending, OECD, taxation

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