The global recession is coming to an end faster than thought a few months ago and may already be over, but recovery will rely on massive government spending and low interest rates for some time, the OECD said on Thursday.

The Organization for Economic Co-operation and Development issued forecasts showing a broad return to economic expansion in the third quarter of 2009.

It also said that while authorities needed to map out a strategy for withdrawal of fiscal and monetary stimulus once recovery was surer, now was no time to economies off life support.

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The recovery might prove a little stronger than previously predicted, OECD chief economist Jorgen Elmeskov told Reuters in an interview where he elaborated on the forecasts for several key economies.

Compared with expectations a few months ago, we now have a recovery which ... may be coming a little earlier and it may be slightly stronger because financial conditions have improved more rapidly than we assumed a few months ago, Elmeskov said.

The OECD forecasts show a third-quarter return to annualized quarter-on-quarter growth in the United States of 1.6 percent, 1.1 percent in Japan, and 0.3 percent in the 16-country euro zone, led by its two largest economies, Germany and France.

The pickup that started with a quite dramatic turnaround in China and other Asian emerging market economies in the second quarter remained heavily dependent on government stimulus and ultra-low interest rates across the world, Elmeskov said.

TURNING POINT FOR G7

While it predicted continued third-quarter contractions in Britain and Italy, and a rise followed by a fourth-quarter dip for Japan, the OECD said the broad picture for the G7 group of industrialized powers was better.

The forecasts, including information up to Sept 2, show the euro area turning positive in both of the last two quarters of 2009 after five straight quarters of contraction.

Indeed, a monthly business survey on Thursday showed an index measuring activity in the euro zone manufacturing and services sectors combined now edging into expansion territory in August.

The OECD now expects 2 percent annualized growth in the euro zone in the fourth quarter, compared with its June prediction for a 0.5 percent contraction.

On Thursday, the European Central Bank raised its staff projections for euro zone GDP this year and next, predicting growth in 2010 of between -0.5 percent and +0.9 percent.

The previous OECD growth forecasts for the United States had been zero and 0.5 percent for the third and fourth quarters -- now upped to 1.6 percent and 2.4 percent respectively.

It sees annualized GDP rises of 1.2 and 1.4 percent in the third and fourth quarters for the G7 as a whole, also signaling an exit from recession at that level.

In some countries including the United States it also looks as if the bottom of the housing market might have been hit a little earlier than assumed, Elmeskov said, noting a rise in house sales and a drop in the overhang of unsold homes.

DON'T PULL THE PLUG YET

The OECD forecasts came on the eve of a meeting of finance ministers from the G20 group of developed and developing economies, at which they are likely to agree it is too soon to begin withdrawing stimulus measures.

Substantial slack combined with the prospect for a weak recovery implies that strong policy stimulus will continue to be needed in the near term, it said.

Regarding monetary policy, taking the first steps toward normalization of policy interest rates from their current exceptionally low levels should in most cases wait until well into 2010 and in some cases even beyond, the OECD said.

Back in June, the OECD said interest rates should stay on hold in all major economies through all of 2010.

Elmeskov acknowledged that this recommendation was no longer quite so categorical but said rates needed to stay very low in the euro zone, United States and beyond for the large part of next year.

As for fiscal stimulus, governments needed to roll out all of the measures they had already announced after foot-dragging by some, said Elmeskov. That, one OECD official said, referred mainly to Germany and the United States.

Elmeskov said the OECD, which is due to issue a fuller set of forecast updates in November, also said that the 16 percent drop in global trade volume it predicted for this year in June would probably turn out to be less steep, due in part to rising import demand from Asia for goods from OECD countries.

Our estimates suggest that in the second quarter China may have grown at 14 percent annualized rate, Elmeskov said. Similarly, the growth rates of other non-OECD East Asia and Southeast Asian countries may on average have been around 10 percent on an annualized rate.

He said governments and central banks' drastic fiscal and monetary steps to stimulate the economy, their response to the worst crisis since the Great Depression now looked increasingly like a success story.

(Editing by Patrick Graham and Andy Bruce)

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