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Divergence in growth between US and Europe

Economic growth in the G7 countries is expected to be firmer through the first half of 2012, but the recovery remains fragile and will likely proceed at different speeds in North American and Europe, according to the OECD in its latest Interim Economic Assessment.

UK growth lagging way behind US and Canada

The Assessment, presented in Paris by Chief Economist Pier Carlo Padoan, says the G7 economies are projected to grow by 1.9% in both the first and second quarters of 2012, although a strong variance in outcomes is expected across this group of countries.

“Our forecast for the first half of 2012 points to robust growth in the US and Canada, but much weaker activity in Europe, where the outlook remains fragile.” Mr Padoan said. “We may have stepped back from the edge of the cliff, but there’s still no room for complacency.”

In the US, the ongoing rebound in employment, stronger consumer confidence, higher equity prices and credit growth are underpinning the recovery, with growth projected at 2.9% in the first quarter and 2.8% in the second. Canada is projected to grow by 2.5% during each of the first two quarters.

On the other hand, Europe is seen as being far weaker. This is due to low consumer confidence, increasing unemployment and difficulty in obtaining credit. The forecast for the UK is that GDP will fall by 0.4% in the first quarter of this year, followed by a growth of 0.5% in the second quarter.

The OECD projects that the euro area’s three largest economies – Germany, France and Italy – will shrink by 0.4 percent on average during the first quarter, before a moderate 0.9 percent growth recovery in the second quarter. In fact, Italy is expected to go into recession in the first half of this year.

Japan is expected to experience a strong upturn in growth in the first quarter to 3.4%, although this is forecast to tail off to 1.4% in the next quarter.

The OECD believes that a number of threats to global recovery remain. These include rising oil prices, weakening activity in emerging market economies, particularly China, and a slowdown in world trade growth that reflects weakening global demand.

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Posted in economic growth, GDP, OECD

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