Global recovery slows amid easing growth in Asia-OECD

PARIS: The global recovery shows signs of easing on slowdown in emerging economies but remains on track for 4.6-percent growth this year, dipping to 4.2 percent in 2011, the Organisation for Economic Cooperation and Development (OECD) said on Thursday. Many countries must work harder and faster to cut budget deficits next year and some may have room to offest this for a while with even cheaper money.

But exceptionally low interest rates cannot last, the OECD warned.

The United States should consider continuing relaxed monetary conditions for the next few years, it said but also insisted that in general in leading economies “monetary policy must gradually return to a more normal stance.”

It suggested that globally, sometime in 2012 exceptional stimulus measures should be on the way out.

A broad risk “relates to the very low levels of long-term interest rates in major OECD economies,” it said in its six-month review of the world economy.

“The current levels of long-term rates are difficult to reconcile with the projection of a mild but sustained recovery,” OECD said.
Radical action to correct national finances will pay dividends in the medium term, the report said, playing down the risk that widespread corrections would have dire effects on growth.

But it also warned at length of dangers in long-lasting exceptionally low rates, notably on sovereign debt markets. One danger was that easy money was causing a problematic flow of funds into emerging economies and currencies.

However, there were signs that some foreign exchange movements were in line with a correction of global payments imbalances. Set against this, it warned: “Global imbalances remain wide, and in some cases have started widening again, and there are rising concerns that they may threaten the recovery.” –AFP