ACCORDING to
an OECD economic assessment ahead of the G20 Summit in Seoul,
the pace
of the global economy recovery has slowed since earlier this year while public
debt in most OECD countries is set to reach all-time highs.
With support
from fiscal stimulus fading, output and trade have softened. Average GDP growth
across OECD countries is expected to be between 2 1/2 to 3 per cent this year,
between 2 and 2 1/2 in 2011 and between 2 1/2 and 3 in 2012. Activity is
projected to vary widely across countries, particularly within the euro area.
The US is expected to gain considerable momentum in 2012, while the Japanese
recovery is expected to lose some steam. In many emerging market economies
growth is continuing robustly, although at a slightly slower pace than earlier
in the recovery.
The crisis has pushed public deficits and debt to
unsustainable levels. Specific budgetary rules and the creation of independent
fiscal watchdogs can help ensure that essential consolidation measures are also
credible, the OECD says. Governments should also seek to strengthen the
cost-effectiveness of expenditures that enhance growth, in areas such as health
care, education, innovation and infrastructure development.
The OECD says
that the challenge for monetary authorities will be to exit the exceptional
stimulus without exacerbating the fragility of financial markets.
If
growth turns out to be weaker than projected, the normalisation of interest
rates should be delayed further, the OECD says. Similarly, if deflation persists
in Japan, rates could remain at current low levels throughout 2011 and 2012, and
further exceptional easing should be implemented to give stimulus to the
economy.
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