O.E.C.D. Lifts Global Growth Forecasts

PARIS — The global recovery is taking root, despite the recent earthquake in Japan, helped primarily by better conditions for companies and improving labor markets, an international economic organization said Tuesday as it bumped up its growth forecasts.

Growth in the Group of 7 industrialized economies, excluding Japan, should rise to an annualized rate of about 3 percent by the middle of this year, from about 2 percent at the end of 2010, the Organization for Economic Cooperation and Development said in an interim update to its annual economic report.

The organization said that the recovery was becoming “self-sustained,” and that corporate balance sheets — not counting banks and other financial services companies — looked “very healthy.”

Despite unemployment rates that are still high in many countries, overall developments in labor markets look better than expected a few months ago, which should have a favorable impact on private consumption, it said.

“The underlying momentum in economic growth in most countries appears stronger than in earlier projections,” the report said.

The O.E.C.D. did not provide specific annualized forecasts for the Japanese economy because of the difficulty in assessing the effects of the earthquake and tsunami. But it said that growth in Japan might have been reduced by 0.2 to 0.6 percentage points in the first quarter of this year and may slip by 0.5 to 1.4 percentage points in the second quarter.

This takes account of the impact of the disaster on production in the areas hit directly, the rationing of power, the decline to confidence and supply chain disruptions.

Reconstruction efforts are likely to begin relatively quickly, it said, and these could begin to outweigh the negative effects on G.D.P. by the third quarter.

The O.E.C.D. forecast annualized growth in the United States of 3.4 percent by the end of the second quarter; 2.2 percent for the 17-nation euro area; and just 1 percent for Britain, the weakest of the major economies surveyed.

It added that given rising prices in some O.E.C.D. countries, “monetary policy will need to deal with a risk that inflation expectations may become un-anchored.”

Public finances “remain in distress in most O.E.C.D. countries,” it said, and the priority should be “to consolidate budgets and establish credible and growth-friendly medium-term plans.”

Article source: http://www.nytimes.com/2011/04/06/business/global/06oecd.html?partner=rss&emc=rss