The world’s biggest economies are slowly recovering from a late 2012 slowdown, the OECD said in a near-term of assessment of Group of Seven nations Thursday, with Japan and the United States leading the way, ahead of a struggling, two-speed eurozone.
Emerging economies were tipped to remain by far the strongest growth performers, with China expected to expand by well more than 8 percent in the first half of 2013, the Organization for Economic Development and Cooperation said.
The OECD forecast that the full G-7 most industrialized economies, which does not include China, will grow by 2.4 percent in the first quarter of this year on an annualized basis and by 1.8 percent in the second.
Forecasts remain very uncertain however, the OECD added, with new-found buoyancy on financial markets yet to feed through to the wider economy. Accordingly, the need for monetary stimulus from central banks remained “a key instrument for supporting demand” even though results could be insufficient and despite the dangers.
An expansionary monetary policy “should remain in place for now and in some case be pursued further,” the OECD said.
The Paris-based organization said that although downside risks to growth were eased last year after the U.S. took action to face its fiscal cliff debacle and the European Central Bank pledged support for troubled eurozone economies, “real activity has yet to reflect fully the improvement” seen on the financial markets “especially in the euro area.”
“This highlights the risk of asset prices getting out of line with fundamentals, especially as regards to corporate securities,” the report said.
The eurozone economy is experiencing a divergence, the OECD said, with Germany “likely to pick up strongly over the first two quarters of 2013” and the economies of other member nations such as France and Italy remaining “slow or negative.”
It said that existing commitments to reduce budget deficits should be met, but did not encourage eurozone countries to make further spending cuts and tax hikes given the slower-than-expected economic growth.
“Many of the countries are currently in recession, the nominal deficit reduction targets cannot be met in the short term,” OECD Chief Economist Pier Carlo Padoan said.