OECD doubles 2010 Growth Forecast, Recovery to Widen

Nov. 2009 (Bloomberg) -- The Organization for Economic Cooperation and Development doubled its growth forecast for the leading developed economies for 2010 and predicted a further acceleration in 2011 as China powers a global recovery.

The economy of the group’s 30 member countries will expand 1.9 percent in 2010 and 2.5 percent in 2011, the Paris-based organization said in its last report. Output will contract 3.5 percent in 2009. The OECD, which advises members on economic policy, forecast 2010 growth of 0.7 percent in June.

The MSCI World Index has surged 69 percent in the past eight months as the world economy emerges from its worst recession in more than half a century. While the U.S. and the euro region are returning to growth this year, mounting debt burdens will keep the expansion in check, the OECD said.

"We now have numbers that support a recovery in motion,"Jorgen Elmeskov, the OECD’s acting chief economist, said in an interview. "It’s still a slow recovery because of considerable headwinds from the need to adjust the balance sheets of households, enterprises and financial sectors."

The MSCI index, was little changed immediately after the OECD report was published. The yield on the benchmark German 10-year government bond stayed at 3.292 percent.

Meltdowns
The U.S. economy will grow 2.5 percent in 2010 instead of the 0.9 percent predicted in June and the euro region will advance 0.9 percent instead of a projection it would stagnate, the OECD said. Japan will post growth of 1.8 percent instead of 0.7 percent. The forecast for China was raised to 10.2 percent.

"Outside of the OECD, things are more buoyant, especially in Asia," Elmeskov said. "The non-OECD countries weren’t affected by asset-price meltdowns as much and up to the downturn ran sensible economic policies."

The relative weakness of the U.S. and the euro region is prompting policy makers to put China under pressure to allow the yuan to appreciate more and help their exporters. President Barack Obama told Chinese leaders the U.S. expects to see progress this year on making the exchange rate "more flexible," Ambassador Jon Huntsman said.

The OECD also gave 2011 forecasts for the first time. The U.S. will grow 2.8 percent, the euro area 1.7 percent and Japan 2 percent. The Chinese economy will expand 9.3 percent, it said.

OECD output will only return to the level achieved in the first three months of 2008 in the third quarter of 2011.

The OECD said unemployment in the bloc will increase by 21 million by the end of 2010 compared with 2007, taking the rate to 9 percent.