PARIS: A fragile global economic rebound is set to gather momentum next year but debt in leading industrialized nations is expected to soar to record levels, the OECD said on Wednesday. Average quarterly growth in OECD members should pick up from 1.75 percent at present to 2.5 percent in the second half of next year and 3.0 percent in the second half of 2012, the OECD said in its latest economic outlook. “The global economic recovery remains fragile but is broadly on track,” the Organization for Economic Cooperation and Development said in a report published ahead of a summit of Group of 20 nations in Seoul later this month. But it warned that the economic crisis of the last two years had “pushed public deficits and debt to unsustainable levels.” OECD Secretary General Angel Gurria said: “Simply stabilizing debt relative to gross domestic product in most countries will require a historical consolidation effort of anywhere from 6.0 to 9.0 percent of GDP.” He said: “But in fact even more is needed to bring debt back to sustainable levels.” The study found that although growth in the industrialized world had slowed this year, reflecting a winding down in government stimulus measures, low interest rates and robust activity in emerging market countries means that “the present soft patch in output growth is not projected to persist for long.” The OECD said that average growth in its members in 2010 was expected to come to 2.5 to 3.0 percent, between 2.0 and 2.5 percent in 2011 and 2.5 and 3.0 percent in 2012. It forecast that while the growth in the United States would be vigorous, given the country's strong ties to emerging markets, the rebound would likely be “more limited” in the eurozone and Japan. The report cautioned that the forecasts could be upset by a renewed slide in housing prices which would cut into consumption, and tension on foreign exchange markets which could prompt protectionist pressures. But what emerged in the analysis as a more immediate threat was the state of public finances, which it said had “badly deteriorated.” It said that even if debt-to-GDP ratios stabilized, they would remain “unacceptably high” in many countries, “exposing them to financial market volatility and reducing their fiscal space to counteract future economic downturns.” The OECD stressed that reducing spending deficits is especially critical in light of renewed concerns about sovereign debt, notably as a loss of confidence in a country's capacity to shore up its public finances would increase borrowing costs. That threat has been acute in parts of Europe this year, in such financially troubled countries as Greece, Spain, Portugal and Ireland. But the OECD found that “sovereign debt turmoil” had abated in Europe with the creation of support arrangements by the European Union and the IMF. “These should be followed up with permanent mechanisms to detect the emergence of unsustainabilities (and) contain the risk of renewed sovereign debt stress,” the OECD said. – Agence France
