Canadian Manufacturing

OECD says developed economies making comeback as emerging ones start to lag

Organization forecast Canada's growth at two per cent; U.S. down slightly to 1.7 per cent



PARIS—Developed economies are staging a comeback after years of lagging growth, but a slowdown in emerging countries will keep global growth low this year, the Organization for Economic Co-operation and Development said.

In its interim assessment, the organization was more upbeat than it has been in recent years, as debt and financial crises in Europe and the United States hammered growth.

Deputy chief economist Joergen Elmeskov said the gross domestic product of the seven leading economies, known as the G-7, has been improving since shrinking in the last quarter of 2012 and would grow at an annualized rate of about 2.5 per cent in the second half of this year.

“It’s moderate, but it’s still a better outcome than what we were used to in the recent past,” he told journalists as the report was released.

The report raised its estimates for growth in the two largest economies that use the euro: It predicted Germany would grow 0.7 per cent this year, up from May’s prediction of 0.4 per cent.

France should see 0.3 per cent growth, as opposed to the contraction expected in May.

But it lowered its forecast for the U.S. to 1.7 per cent from its estimate in May of 1.9 per cent, while Canada’s growth was forecast at two per cent.

China, the biggest of the emerging economies, was seen growing 7.4 per cent, down from a previous forecast of 7.8 per cent.

The organization called on central banks to continue with the loose monetary policies that have been credited with helping economies rebound.

“Monetary policy clearly needs to remain strongly expansionary,” especially in Europe and Japan, said Elmeskov.

He added that the U.S. can start winding down its bond-buying plan, which has been supporting the economy by keeping interest rates down, but should do so slowly and carefully.

Already, it said, expectations that the U.S. would ease its monetary stimulus program have caused an increase in long-term market interest rates and started weighing on emerging economies.

With unemployment in many parts of the world still high, businesses and consumers still need the low interest rates and easier access to loans that loose monetary policy provides, the report said.

A sharp pullback could sink the recovery.

The OECD also warned that even though the economy of the countries that use the euro has come out of recession, the region is still fragile and could drag down global growth.

While many emerging economies are slowing, the organization said it thought the worst was over in China.

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