Leading economies set to diverge in recovery: OECD

8th November 2010, Comments 0 comments

The world's leading economies are set to diverge as they recover from the global economic crisis, with the United States, Germany, Japan and Russia gaining pace while China, Britain, France and India slowing down, the OECD said on Monday.

The Organisation for Economic Cooperation and Development said the forecasts were based on its composite leading indicators (CLI) index.

The indices for China and another emerging market powerhouse, Brazil, "continue to point strongly downwards, edging below the long term trend and implying that the level of industrial production will fall below its longer-term trend," the report said.

In the United States, the government reported last month that the economy grew at a modest 2.0 percent in the third quarter after a pace of 1.7 percent in the second.

Analysts described third-quarter activity as tepid and unlikely to make a serious dent in the country's 9.6 percent rate of unemployment.

US Treasury Secretary Timothy Geithner nevertheless said on Monday that chances were lower of a US "double-dip" recession than at any time in the last 12 months.

"Things are gradually getting stronger in the US," he told a business audience in New Delhi, where he was accompranying US President Barack Obama on an official visit.

"Chances of a double-dip recession look lower than they have been over the last three, six to 12 months," he said.

"The basic tone of the numbers suggest some modest strengthening of growth."

But overall lackluster prospects last week prompted the US Federal Reserve to resume a controversial stimulus initiative through which it intends to inject 600 billion dollars (422.5 billion euros) into the economy through the purchase of Treasury securities and other assets held by banks.

The move sparked criticism from governments around the world, notably China, where the decision was seen as a bid to weaken the dollar as a means of boosting US exports at the expense of Washington's competitors.

A protracted Chinese slowdown would be of major concern to the United States and the European Union, which look to the Chinese market as a critical export outlet.

World stock markets picked up last week after manufacturing activity in China was reported to have hit a six-month high in October.

The Chinese economy grew 9.6 percent year-on-year in the third quarter, down from 10.3 percent in the second and 11.9 in the first in the face of government efforts to rein in property prices and bank lending.

But the World Bank last Wednesday boosted its 2010 growth forecast for China to 10 percent, while warning that global tensions over trade imbalances could cast a shadow over the rosy economic outlook.

The bank based its new prediction on what it termed the "still surprisingly strong" 9.6-percent growth in the third quarter and said the prospects for the world's second-largest economy "remain sound."

Elsewhere in Asia the Bank of Japan recently downgraded its 2010 growth forecast to 2.1 percent from 2.6 percent, warning that the pace of recovery was likely to slow in the second half.

The bank last week held off on approving extra monetary easing measures while issuing a downbeat report on the world's number three economy.

"Japan's economy still shows signs of moderate recovery, but the recovery seems to be pausing. Exports and production have recently been more or less flat," the bank said.

In Europe, Germany is again seen as a growth engine. The government last month more than doubled its forecast for output this year and predicted a steady expansion in 2011.

Europe's top economy is poised to grow by 3.4 percent in 2010 before slowing next year to 1.8 percent, Economy Minister Rainer Bruederle said.

This represented a major revision from the government's previous forecasts made in April, of 1.4 percent and 1.6 percent respectively.

Bruederle said that after a strong impulse from exports, domestic demand would contribute much more to growth next year. "The recovery is standing solidly on two legs."

On Monday Berlin reported that German sales abroad rose by 3.0 percent in September. Compared with data for September last year exports surged by 22.5 percent.

In Britain, where radical spending cuts are planned, fears of a double dip recession eased last month when it was reported that the economy grew by a robust 0.8 percent in the third quarter.

The quarterly figure, which was double market expectations, was largely the result of gains in services, construction and production, the Office for National Statistics (ONS) said.

On a 12-month comparison, third-quarter growth hit 2.8 percent, the strongest reading since 2007.

© 2010 AFP

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