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Improving US, Japan can't stop OECD cutting global forecast
Aggregated Source: Shanghai Daily: Business

THE recession-hit eurozone will fall further behind a generally improving United States and a rebounding Japan this year, the OECD said yesterday, cutting its global growth forecasts.

In its twice-yearly Economic Outlook, the Organization for Economic Cooperation and Development forecast the world economy would grow 3.1 percent this year before speeding to 4 percent in 2014.

The estimates marked a slightly more pessimistic view after the Paris-based think tank in November forecast global growth of 3.4 percent this year and 4.2 percent next year.

The US was seen driving global growth with the world's biggest economy projected to expand 1.9 percent this year and then accelerating to 2.8 percent in 2014, which would be the country's best rate since 2005.

In contrast, the eurozone was estimated to remain in recession for a second year. The OECD sees its economy contracting 0.6 percent in 2013 and then returning to growth next year with a rate of 1.1 percent.

However, the outlook diverged widely within the 17-nation bloc with regional powerhouse Germany seen achieving growth of 0.4 percent and rebounding to a rate of 1.9 percent in 2014.

After years of debt crisis testing the eurozone's capacity to hold together, OECD chief economist Pier Paolo Padoan said risks to the economic outlook have finally begun to recede.

However, he warned that the easing in the eurozone's debt crisis may lead to reform fatigue.

"As far as Europe is considered, we are concerned that complacency could set in," Padoan said. "That is a new risk that is coming up in Europe."

Unlike the US in the 2008-09 financial crisis, the eurozone still needed to tackle problems in its financial sector holding back the flow of credit, he said.

Lifting its estimate for Japan, the OECD said the central bank's pledge to ramp up its monetary stimulus aggressively would help its economy grow 1.6 percent this year.

The OECD took a more pessimistic view on China, forecasting that its economy would grow 7.8 percent this year, down from a previous estimate of 8.5 percent.

With economies in most countries still recovering, the OECD said central banks should keep monetary policies easy while the European Central Bank should even step up its efforts to get credit flowing to the economy.

The OECD called on the ECB to make banks pay for holding deposits with it and urged it to buy assets such as securitized loans from credit-starved small and medium-sized firms, two options ECB policymakers say they are studying.

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