Growth forecasts raised for OECD nations: report

The emerging economies of China and India risk overheating and indebtedness may threaten expansion in the developed world, according to the report. Exchange rate flexibility could ease some of the pressure on Chinese monetary policy and provide more scope for addressing domestic inflation, according to the report.

Bolder measures need to be taken to ensure fiscal discipline in the euro region, the OECD outlook said, adding that many nations are already taking early action to enhance the credibility of their fiscal consolidation plans.

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In Italy, the recession, which had one of the largest peak to trough falls in output in the OECD area, ended in mid-2009.

The OECD report projected the recovery for Italy to be moderately paced for 2010 although the country clocked an annual growth rate of 2 percent in the first quarter.

“Government policy has helped to limit unemployment, which will nevertheless continue to rise slowly into 2011. Excess capacity will exert continuing downward pressure on inflation after a short-term increase due to resurgent energy prices,” the OECD outlook said.

Italy kept its budget deficit in line with plans in 2009, thus generating bond-market confidence and a relatively low risk premium. But in its outlook for Italy, the OECD said it is necessary to pursue substantial fiscal tightening in 2011, which will require a high degree of spending curbs as announced by the government.

“Many OECD countries need to reconcile support to a still fragile recovery with the need to move to a more sustainable fiscal path,” said OECD Secretary-General Angel Gurria.

The report said the emergency fiscal measures provided by governments to tackle the crisis must be removed by 2011 at the latest.

With a huge debt burden weighing on many OECD countries and the strengthening recovery, the emergency fiscal measures provided by governments to tackle the crisis must be removed by 2011 at the latest, the Outlook says. It adds that the pace of such action must be appropriate to particular conditions and the state of public finances in each country.

The growth in jobs is not keeping pace despite the economic activity picking up. The number of unemployed has risen by 16 million in OECD countries in the past two years. The unemployment rate may now be peaking at an average 8.5 percent across OECD economies and is likely to fall only slowly in the near term, the Outlook said.

The report said the governments must make provisions in their budgets for cost-effective labor market programmes supporting workers who are at greatest risk of becoming long-term unemployed.