OECD sees gradual world recovery, urges ECB to do more

Tue Nov 25, 2014 6:25am EST
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By Ingrid Melander

PARIS (Reuters) - The global economy will gradually improve over the next two years but Japan will grow less than previously expected while the euro zone struggles with stagnation and an increased deflation risk, the OECD said on Tuesday.

There will be marked divergences among countries both in terms of growth and monetary policy, leading to volatility in debt and foreign exchange markets, the Organisation for Economic Co-operation and Development said.

The United States and Britain will grow more strongly then the euro zone and Japan and, among emerging countries, India, Indonesia and South Africa are set to recover steadily. Russia's economy is set to stagnate next year and China's will soften, the think-tank said in its bi-annual economic outlook.

Overall, the global economy is set to grow by 3.3 percent this year, 3.7 percent in 2015 and 3.9 percent in 2016, the OECD said, confirming forecasts published before the G20's summit earlier this month.

While most estimates remained unchanged, Japan's forecast was more than halved for 2014 and cut to 0.8 percent for next year after it unexpectedly fell into recession in the third quarter. But the OECD still expects Japan to recover as corporate profits remain high and a weak yen will help exports.

A bigger worry for the Paris-based think-tank is the euro area, which it said "may have fallen into a persistent stagnation trap".

"The euro area is at risk of deflation if growth stagnates or if inflation expectations fall further," it said.

Its inflation forecasts of 0.6 percent for the euro area next year and 1.0 percent for 2016 are slightly more pessimistic than the EU's own forecasts and far from the European Central Bank's target of just below 2 percent.   Continued...

A man walks past various currency signs, including the dollar (top R), Australian dollar (top L), pound sterling (centre L) and euro (bottom L), outside a brokerage in Tokyo October 28 2014.  REUTERS/Yuya Shino