Global economic activity is picking up, but the continuing crisis in Europe is delaying a meaningful recovery, the Organization for Economic Co-operation and Development (OECD) in said in its latest economic assessment released Thursday.
The Paris-based OECD predicts that the G7 economies will grow at an annualized 2.4% rate in the first quarter of 2013, and by 1.8% in the second quarter. It also notes that financial markets are out-pacing activity in the real economy, which has been held back by weak business and consumer confidence. The OECD says that this highlights the risk that asset prices may rise beyond levels justified by fundamentals.
“The global economy weakened in late 2012 but the outlook is now improving for OECD economies,” said OECD chief economist, Pier Carlo Padoan. “Bold policy action remains necessary to ensure a more sustainable recovery, particularly in the euro area, where growth is uneven and remains slower than in other regions.”
The OECD projects that Europe’s three largest economies – Germany, France and Italy – will grow by 0.4% during the first quarter and by 1% in the second, but it points to a renewed divergence between Germany and the rest of the euro area. Germany is expected to grow by 2.3% in the first quarter and 2.6% in the second, whereas France is expected to see a 0.6% contraction in the first quarter and a 0.5% gain in the second. In Italy, real GDP is expected to drop by 1.6% in the first quarter and by an additional 1% in the second, the OECD notes.
Additionally, it says that weak growth and low confidence are expected to complicate efforts to bring down high unemployment rates across much of Europe. “The employment situation continues to deteriorate in many countries, making it all the more urgent to implement the labour and product market reforms that can stimulate growth and create jobs,” Padoan said.
The OECD also predicts that Canada will grow by 1.1% in the first quarter and 1.9% in the second. Whereas the U.S. economy is expected to see a rebound of 3.5% in the first quarter, slowing to 2.0% in the second quarter.
Monetary stimulus remains necessary but needs vary across countries, it maintains. “In the United States, the commitment of the Federal Reserve to keep policy rates low until labour market outcomes improve substantially is well judged, but the need for further exceptional monetary measures is waning, while in Japan more aggressive policy action is required to escape deflation and achieve the Bank of Japan’s new 2% inflation target,” Padoan said. “In the euro area, there is still some scope to ease monetary policy further, given weak demand and inflation well below the ECB’s objective, while further action is needed to repair the transmission mechanism.”