THE RECOVERY in the world economy is becoming self-sustaining, according to new forecasts from the Organisation for Economic Co-operation and Development (OECD) released yesterday.
Despite the stronger expansion expected in many of Ireland’s leading export markets however, the OECD slashed its forecast for Irish growth.
The Paris-based think tank now expects gross domestic product (GDP) to come in at 0 per cent in 2011, down from growth of 1.5 per cent six months ago.
Although the OECD believes Ireland will benefit from the stronger growth internationally, a weaker than anticipated domestic economy will more than offset this effect. While projections for Irish export growth were revised upwards, private and public consumption growth rates were cut sharply.
The organisation expects the domestic economy to contract by 4 per cent in 2011.
Since its last forecast the OECD has become more upbeat in its assessment of economic growth in both the euro zone and the US.
In November of last year the organisation was concerned about a “double-dip” recession, but this has not come to pass, it said.
The organisation’s optimism extends to the euro zone despite the deepening of the sovereign debt crisis. The OECD put little stress on it as a risk to the European and wider global recovery.
GDP in the euro zone is now expected to grow by 2 per cent in 2011, up from 1.7 per cent in November.
But the better-than-expected performance in the euro area as a whole masks an ever deeper chasm in growth prospects between the troubled peripheral countries and the northern part of the zone. The OECD has cut its forecasts – sharply in some cases – for Greece, Italy and Portugal, as well as for Ireland, in 2011. Spain’s 0.9 forecast is unchanged.
By contrast, the OECD is considerably more upbeat about the core countries, most notably Germany, whose economy it expects will grow by 3.4 per cent this year.
The US has also had its GDP forecast revised upwards for 2011 – to 2.6 per cent from 2.2 per cent in November.
By contrast, the prospects for the UK economy have deteriorated. The OECD has cut its forecasts for the UK, with GDP forecast to expand by 1.4 per cent this year. In November an expansion of 1.7 per cent was expected.
Among the most notable aspects of the OECD’s new forecasts on Ireland was its bleak outlook on future unemployment rates. It expects joblessness to reach almost 15 per cent this year and for the rate to remain largely changed next year. Both the European Commission and the IMF expect the unemployment rate to fall below 14 per cent next year.
The OECD advocates a more radical shake up of labour market policy in Ireland.
Globally, the OECD believes that risks to the world economy remain “elevated”. High prices of energy and other commodities are holding back the recovery as they are eroding consumers’ spending capacity.
The OECD advocates the tightening of fiscal policy among its 34 high and middle-income member countries. This is needed, it believes, to contain and reverse the very large increases in public debt that have been run up during the recession.
The Paris-headquartered think tank also believes that central bankers in the US and UK should follow the lead of the European Central Bank and begin raising interest rates.
