The Organisation for Economic Co-operation and Development (OECD), Europe’s leading think tank held its annual forum last week where it delivered stern counsel to Governments worldwide on economic growth, employment and the global recovery.
The first of these warnings was to the UK cautioning that interest rates needed to rise in order to curb inflation. The OECD said the government’s mix of tax increases and spending cuts were needed to rein in the budget deficit, slow the build of the UK’s national debt and maintain the confidence of financial markets.
But other geographies were also singled out with OECD Chief economist Pier Carlo Padoan talking in detail about the economic outlook saying: “…a stronger-than-projected slowdown in China; the unsettled fiscal situation in the United States and Japan; and renewed weakness in housing markets in many OECD countries mean that financial vulnerabilities would remain in the euro area, in spite of strong adjustment efforts underway in some countries.”
The report also pointed out that the top challenge facing countries continued to revolve around widespread unemployment, which affects more than 50 million people in the OECD area. The panel went onto say that Governments needed to ensure employment services and training programmes actually matched the unemployed to jobs. They should also rebalance employment protection towards temporary workers; consider reducing taxes on labour via targeted subsidies for low paid jobs; and promote work-sharing arrangements that can minimise employment losses during downturns.
“This is a delicate moment for the global economy, and the crisis is not over until our economies are creating enough jobs again,” said OECD Secretary-General Angel Gurría. “There is also some concern that if downside risks reinforce each other, their cumulative impact could weaken the recovery significantly, possibly triggering stagflation in some advanced economies.”
For the 34-nation OECD as a whole, the economic outlook report predicted growth of 2.3% in 2011, rising to 2.8% in 2012. While noting that the recovery was becoming “self-sustained and more broad based”, the OECD pointed to significant downside risks including rising commodity prices, a sharp slowdown in China and the sovereign debt crisis in the eurozone.
All this appears to indicate that while global recovery is firmly under way, it’s taking place at different speeds across countries and regions.
So it could be said that the global economy is exiting recession but not exactly returning to business as usual. It will be interesting to see how industry and Governments respond.