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OECD raises growth outlook for US, Europe in 2011

By Frank Jordans

Associated Press

Published: Wednesday, May 25 2011 11:03 p.m. MDT

PARIS — Prospects for economic growth in the United States and the eurozone have improved and are predicted to hit 2.6 percent and 2 percent this year, the Organization for Economic Cooperation and Development said Wednesday.

Overall forecasts for real GDP growth in the OECD's 34 member states, comprising most of the world's major economies, remained steady at 2.3 percent in 2011.

Japan stands out negatively. Its economy is now predicted to contract by 0.9 percent because of the March earthquake that devastated hundreds of homes and businesses along the northeast coast.

The Paris-based OECD had predicted last November that real GDP in Japan would grow at a modest 1.7 percent, on a par with the eurozone, and that the United States would expand by 2.2 percent.

Global growth is now pegged at between 4.25 percent and 4.5 percent this year.

Whether this will translate into genuine improvements in living standards is unclear. The OECD has acknowledged that GDP is a limited gauge which doesn't reflect many changes in quality of life. Earlier this week the organization launched a separate index to measure people's expectations and governments' abilities to meet them.

But the OECD said it would cling to GDP as a key measure of the speed, if not direction, of the global economy for the foreseeable future.

The OECD said the biggest risks stem from a fresh jump in oil prices due to political unrest in the Middle East, disruption of the global manufacturing chain due to Japan's earthquake, and the possibility of a sharper than predicted slowdown in China if Beijing's efforts to stem inflation strangle lending.

China isn't an OECD member but the group examines its economy anyway because of the country's growing economic clout.

Reducing government debt should be a priority in the coming months, the OECD said, citing in particular the United States and Japan. "In some countries this will require unblocking political stalemate that makes fiscal policy unpredictable over both short and long horizons."

Europe, too, remains in a fragile state because of the heavy cost of financing bailouts for Greece, Portugal and Ireland. All three countries will have to fulfill their pledge to reduce government debt, said OECD chief Angel Gurria.

He saw little chance that a similar rescue package might be needed for Spain.

"I think Spain has done its homework," Gurria told The Associated Press. "Spain is doing everything to decouple itself from the countries that are in crisis."

GDP forecasts for OECD member states in 2012 remained at 2.8 percent, as predicted in November.

Online:

OECD Economic Outlook: http://bit.ly/lnQ9Wh

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