OECD warns of uneven economic growth over next two years

The Organization for Economic Cooperation and Development (OECD) said that economic activity in its member countries will gradually pick up steam over the coming two years, but the recovery will be uneven and unemployment will remain persistently high.

Specifically, gross domestic product GDP across OECD countries is projected to rise by 2.3 percent in 2011 and 2.8 percent in 2012 (from 2.8 percent in 2010).

In the U.S., GDP is projected to rise by 2.2 percent in 2011 and then by 3.1 percent in 2012 (from 2.7 percent in 2010).

Euro area growth is forecast at 1.7 percent in 2011 and 2 percent in 2012, while in Japan, GDP is expected to expand by 1.7 percent in 2011 and by 1.3 percent in 2012.

“With the functioning of the financial sector returning to normal and households and business in a position to renew spending and investment, the main challenge facing governments today is moving from a policy-driven recovery toward self-sustained growth,” the OECD said in a statement.

The emerging markets are expected to grow at a quicker pace than the OECD, helping to lift global trade growth to more than 8 percent annually in 2011 and 2012.

“As stimulus is withdrawn, governments will have to provide a credible medium-term framework, to stabilize expectations and strengthen confidence, particularly for the private sector,” OECD Secretary-General Angel Gurría said. “Enhanced confidence could result in a faster-than-projected recovery”

However, the group added, uneven growth within the OECD area, as well as between the OECD and emerging economies, will add to global imbalances, which are among the most significant threats to the recovery.

The OECD is warning countries against taking unilateral action in response to exchange rate volatility, and says that international collaboration, notably within the G20 process, will be essential to warding off protectionism.

OECD also cautioned that there are several downside risks that could derail the recovery, including the potential for renewed drops in real estate prices, most notably in the U.S. and the U.K., high sovereign debt in some countries and possible abrupt reversals in government bond yields.

The OECD recommends that countries adopt a combination of coordinated macroeconomic and structural policies to ensure the conditions for long-term growth.

“Fiscal consolidation is needed to reduce government deficits and debt, while making room for future fiscal policy action,” it said.

“Structural reforms are needed to boost growth and employment, and to contribute to budget consolidation and external rebalancing. Monetary policy must gradually return to a more normal stance.”