PARIS: Crisis still stalks the global economy with stagflation lurking and Japan set for recession this year, even though overall activity is staging a moderate recovery, the Organization for Economic Cooperation and Development (OECD) said Wednesday. The OECD held its 2011 global growth forecast steady at 4.2 percent in its latest semi-annual Economic Outlook report, but warned of negative uncertainty. Recovery is uneven, the OECD said, switching its forecast for Japan to show a recession of 0.9 percent owing to the short-term effects of the March earthquake and tsunami. But it sees a strong recovery to 2.2 percent growth next year. In the last forecast in November before the earthquake, the OECD had forecast that the Japanese economy would slow but still show growth of 1.7 percent this year and 1.3 percent in 2012. The latest report said: "The earthquake and tsunami hit when Japan's expansion appeared to be back on track, thanks to buoyant exports and improving labor market." The OECD raised its 2011 forecasts for the United States to 2.6 percent and for the eurozone to 2.0 percent. But dangers off stage include possible increases in oil and other commodities prices, a slow recovery in Japan, a steep slowdown in China, eurozone debt problems, and the unsettled fiscal situation in Japan and the United States. "All this suggests that the global crisis may not be over yet," warned Pier Carlo Padoan, the OECD's chief economist, in his introduction to the report. "A concern is that, if downside risks interact, their cumulative impact could weaken the recovery significantly, possibly triggering stagflationary developments in some advanced economies. Stagflation is a period of low economic growth and high inflation, which are not supposed to occur at the same time according to economic theory and pose problems as conventional policy tools tend to improve one while aggravating the other. The organization which groups 34 of the world's advanced economies said it expected overall inflation in its members to be 2.3 percent this year, up from 1.8 percent in 2010, before slowing to 1.7 percent in 2012. It forecast unemployment to fall to 7.9 percent this year in OECD countries from 8.3 percent in 2010, and then drop to 7.4 percent in 2012.
