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Friday, 4 September 2009

US, Europe set to exit recession: OECD

PARIS (AFP) - - The United States and the eurozone are set to break out of recession in the third quarter, the OECD said on Thursday, adding its voice to forecasts that a fragile global rebound is taking shape.

With the pace of US economic decline slowing and with the eurozone economy actually expanding in August, OECD chief economist Jorgen Elmeskov pointed to a recent "run of good news."

"A recovery looks to be at hand for the OECD at large," he told a news conference here following publication of an economic assessment by the Organisation for Economic Cooperation and Development, which groups 30 leading industrialised economies.

But he cautioned against getting "carried away," warning that the recovery could be "bumpy."

"There are some headwinds. And that's why we see a slow recovery but still a recovery."

Unemployment, he said, poses a particular risk, with unemployment totals in danger of edging higher even as the overall economy revives, "sapping" critical consumer spending.

He added that banks, businesses and households also had "a long way to go" to repair their balance sheets.

While the need for additional government stimulus measures has eased, Elmeskov stressed that official exit strategies from those in place "need to be implemented only at a time when the economy is sufficiently solid to actually withstand it."

The OECD in its report forecast annualised quarter-on-quarter growth in the July-September period of 1.6 percent in the United States, after a contraction of 1.0 percent in the second, and 0.3 percent in the euro area, after a second-quarter slide of 0.5 percent.

The United States contracted at a slower pace in the second quarter, 1.0 percent, than in the first, when te shrinkage came to 6.4 percent.

The 16-nation eurozone meanwhile grew in August for the first time in 15 months, according to a key purchasing managers' survey released Thursday.

Recession is widely considered to occur with two quarters running of negative growth, with a return to positive momentum signalling a potential turnaround.

But many economists fear what is known as a "double dip recession," with an economy showing signs of expansion only to shrink again.

The OECD report gave a margin of error of 1.9 percent for the US forecast and of 1.3 percent for the eurozone, underlining wide uncertainty and implying that recession could endure in both the economic giants.

The report also forecast continued recession in Britain, with negative economic growth of 1.0 percent and a margin of error of 1.2 percent.

The forecasts for Japan and Canada were 1.1-percent growth and 2.0 percent contraction respectively, with margins of error of 2.9 percent and 1.6 percent.

Elmeskov cited four areas of overall improvement in OECD economies to support the organisation's upbeat assessment.

Financial market conditions, he said, have become generally healthier since March, as credit policies have eased and share prices have strengthened.

This trend, he added, "owes a lot to measures taken by central banks and governments to stabilise the financial situation."

Secondly, as a drawdown in business inventories is unlikely to continue, production will have to increase.

Trade volumes, which have taken beating in the financial crisis, "may have stabilised or even started to grow again," with countries reporting growth in export orders.

Fourthly, the housing market "may cease to be a drag on activity," particularly in the United States where the "overhang"of unsold houses has come down and where prices have stabilised.

He also cited apparent recoveries in consumer and business confidence.

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