Asia is leading the global economy out of the deepest downturn in decades but the recovery will be marred by high unemployment and huge government debt across the industrialized countries, the OECD said on Thursday.

Central banks and governments in major Western economies should prepare for a gradual upwards shift in ultra-low interest rates and for fiscal consolidation once recovery is stronger, but they will only need to move in late 2010 at the earliest given that inflation is so low, it said in its Economic Outlook.

The Paris-based Organization for Economic Co-operation and Development raised its global growth forecast for next year to 3.4 percent from the 2.3 percent it was predicting as recently as June, after an estimated contraction of 1.7 percent in 2009.

We are looking at a scenario where disaster has been avoided but we're still looking at a scenario which involves slow growth and high unemployment, the OECD's chief economist, Jorgen Elmeskov, told Reuters television in an interview.

In the twice-yearly report, the OECD lowered its estimates of the scale of this year's recession and substantially raised most of its forecasts for growth in 2010, when it said the economy would remain dependent on government life-support.

U.S. growth, measured by gross domestic product, should rise 2.5 percent in 2010 after a contraction of 2.5 percent in 2009, and rise a further 2.8 percent in 2011, the OECD said.

Euro zone GDP should rise 0.9 percent in 2010 and 1.7 percent in 2011 after a downturn of 4.0 percent in 2009, it said.

Japan could expect GDP growth of 1.8 percent in 2010 and 2.0 percent in 2011 after a drop of 5.3 percent in 2009, it said.

(For a graphic showing growth, inflation, unemployment and trade growth for the U.S., Japan, and euro zone, click here: http://r.reuters.com/baf52g)

In June, the OECD was predicting growth of less than 1 percent in 2010 in all three regions and for the 30 OECD member countries as a whole. It now sees GDP growth of 1.9 percent in 2010 and 2.5 percent in 2011, after a contraction of 3.5 percent in 2009.

The upturn in the major non-OECD economies, especially in Asia and particularly China, is now a well-established source of strength for the more feeble OECD recovery, said the OECD, whose only two Asian members are Japan and South Korea.

The OECD's global growth forecast includes emerging giants China, Brazil, India and Russia with the mostly industrialized economies of its own 30-country membership and in all covers some 80 percent of world output.

The OECD said it expected world trade to grow 6.0 percent in 2010 and 7.7 percent in 2011 after a plunge of 12.5 percent this year, and economist Elmeskov said the OECD might if anything be underestimating the demand from fast growers such as China.

FEEBLE AND INDEBTED WEST

Compared to a GDP forecast of 1.9 percent next year for the mostly industrialized countries of its own membership, the OECD forecast growth of more than 10 percent in China this year due in large part to massive stimulus that it believes maintained GDP growth at more than 8 percent in 2009, when output was shrinking across the West.

India, which likewise weathered the crisis with growth of an estimated 6.1 percent in 2009, could expect 7.3 percent growth next year and a bit more in 2011, while Brazil, another fast developer, was headed for growth of 4.8 percent in 2010.

Government spending to stimulate the Chinese economy had not driven China's public finances into the parlous state that most governments in the developed economies will have to tackle when the recovery is more sure-footed, the OECD said.

Gross government debt in the OECD countries could on average exceed GDP in 2011, the Paris-based Organization said.

Stopping the rot is clearly necessary and will call for fiscal consolidation that is substantial in most cases and drastic in some, the OECD report said.

That said, and countries facing acute problems aside, consolidation should not proceed at a pace that undermines the recovery.

On the jobs front, the OECD forecast further increases in the OECD-wide unemployment rate, to 9.0 percent in 2010 and 8.8 percent in 2011 from 8.2 percent in 2009.

It predicted the U.S. jobless rate at 9.9 percent next year and dropping to 9.1 percent in 2011 after 9.2 this year, while it saw the rate in the euro zone hitting 10.6 in 2010 and moving up again in 2011 to 10.8 percent, after 9.4 percent in 2009.

(Editing by Andy Bruce)

China Japan Russia South Korea