Brussels, 03/09/2013 (Agence Europe) - The economic slowdown in the emerging economies is weighing down on the global economy, which has not picked up despite the start of the upturn in the developed world, explains the OECD in interim economic forecasts published on Tuesday 3 September, two days before the G20 summit in St Petersburg.
In the developed world, economies beat growth expectations in the second quarter of 2013, a trend which is expected to continue on until the end of the year. The OECD expects to see encouraging growth signs in the United States (2.5% and 2.7% of GDP in the third and fourth quarters of 2013), Canada (4.8% and 2.5% over the same period), Japan (2.6% and 2.4%), the United Kingdom (3.7% and 3.2%), and the eurozone (2.3% and 2.4% in Germany, 1.4% and 1.6% in France, -0.4% and -0.3% in Italy). The eurozone was the main area of concern at the G20 summit in Los Cabos, Mexico, in 2012, but is now coming out of recession (see EUROPE 10903).
The OECD points out, however, that “financial turbulence” due to the domestic economic downturn and the potential end of quantitative easing (and therefore an increase in interest rates) in the United States will affect a number of emerging economies, particularly those whose current accounts tend to be in deficit, like South Africa, India and Turkey. This turbulence has already led to instability on the markets, increasing the cost of borrowing for the emerging economies in question, which have seen capital outflows and a depreciation of their currencies.
The OECD talks about a dilemma faced by these economies - currency depreciation and loss of capital calling for a raising of interest rates, whereas the economic cycle requires the opposite.
Africa has called for greater cooperation at the G20 to make sure that the major world powers consider the impact of their economic decisions on other economies.
Risks. The OECD says that the green shoots of recovery are still fragile because the underlying risks have not gone away. It says the eurozone remains vulnerable, European banks are not yet sufficiently capitalised and are still being hamstrung by their toxic debt portfolios. Acknowledging progress in the field of banking union, the OECD says that “measures” will be needed to ensure that the assessment of bank assets to be carried out in the spring of 2014 by the European Central Bank (as the new European bank supervisor) are credible. The organisation says that state aid will have to be provided, where necessary, to improve banks' capital ratios.
Inflationary pressure is weak and the OECD recommends that accommodative monetary policy should continue, along with budget consolidation and the introduction of structural reforms that lead to job creation. The United States is asked to keep its interest rates low, a slow-down in the purchase of national sovereign debt being considered “appropriate”. (MB/transl.fl)