China, global stimuli to drive GDP growth in 2010 – OECD outlook

19 November 2009 18:19  [Source: ICIS news]

HOUSTON (ICIS news)--Government stimulus measures from countries such as China will drive gross domestic product (GDP) growth in most global economies in 2010, but the recovery is still too weak to halt rising unemployment, the Organisation for Economic Co-operation and Development (OECD) said on Thursday.

For the 30 OECD member countries, GDP is projected to expand by 1.9% in 2010 and 2.5% in 2011 after falling by 3.5% in 2009, the report said.

China’s massive fiscal stimulus limited the 2009 slowdown, with an 8.3% GDP expansion in spite of the global economic crisis. Moreover, that stimulus should help boost GDP by 10.2% in 2010 and 9.3% in 2011 as a strong increase in domestic demand has drawn in imports, the OECD said.

Because the country started its stimulus programme with a sizable surplus and negative net government debt, the government can afford to keep spending at higher levels, the organisation added.

Likewise, the US economic stimulus should pull it from a 2.5% GDP contraction in 2009 to 2.5% growth in 2010 and 2.8% in 2011, the OECD said.

However, the US government must begin to withdraw its support as economic growth becomes self-sustaining, the organisation warned.

In Europe, the sharp contraction in financial activity appears to have ended sooner than expected, with further improvements in financial conditions, fiscal stimulus measures and a stabilisation in export demand, the OECD said.

However, headwinds from financial sector deleveraging and rising unemployment figures were likely to make the European region’s recovery slower than in the US, according to the outlook.

“Medium–term growth prospects [for Europe] would be enhanced by clear and credible plans for future fiscal consolidation and further structural measures to deepen the single market, enhance competitive pressures and strengthen financial supervision,” the report said.

While the unemployment rate was likely to peak in the first half of 2010 in the US, it may not be until 2011 that unemployment falls in Europe, according to the group.

Europe’s GDP should decline 4% in 2009 before rising 0.9% next year and 1.7% in 2011, the OECD said.

In Japan, the overall economy should benefit from strength in the rest of Asia, but weak domestic demand should keep gains in check, according to the OECD. GDP was projected to grow by 1.8% in 2010 and 2% in 2011 after dropping 5.3% in 2009.

Looking beyond 2010, the OECD said unprecedented policy efforts – such as the stimulus measures – have succeeded in limiting the severity of the economic downturn and fostering a recovery to a degree that was largely unexpected even six months ago.

However, as a result of those measures, the gross debt of most countries could be larger than their GDP by 2011. Action to bring public finances under control will need to be substantial in most countries and drastic in some, according to the group.

“Removing stimulus measures is imperative, but such action has to be carried out gradually to avoid undermining the recovery,” said OECD secretary-general Angel Gurria.

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By: Ben DuBose
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