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Wed, Sep 15th - 7:01AM

Moderate Expansion Of OECD Econmies

The latest OECD composite leading indicators statistics signify a moderation in the rate of expansion compared to last month. The index for the OECD was down 0.1 in July 2010.

The downturn predicted for Canada, France, Italy, UK, China and India means that the signs suggest a slower rate of economic growth than was anticipated for last month. The outlook for Brazil, US and Japan is that they will possibly peak and their expansion may lose momentum. The German and Russian economies are expected to expand as are the OECD and the Euro areas. The OECD area last peaked in February 2008 and troughed in May 2009 along with the Euro area which last peaked in March 2008.

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Wed, Sep 15th - 6:55AM

OECD Expects Uneven growth

The May OECD Economic Outlook says growth is gradually increasing in the OECD area but at different rates across different regions, especially in emerging-market economies. Risks in global recovery may even greater now. The upturn is in large part due to keeping markets open, pulling the economy out of recession.

The emerging economies are experiencing a re-opening of imbalances. China, however, is an example of strong domestic demand preventing a large external surplus rising to pre-crisis levels. Appropriate policies are still required to address global inequalities. The G20 is given as being potentially important in identifying and implementing a set of policies for more sustained and balanced growth. International collaboration will also be required for progress in financial market reform.

Even though growth has been taking place, unemployment has increased by over 16 million in the OECD area over the last two years but it is less than expected. Employment growth prospects in some European economies and Japan are weak. A jobs recovery could take place with appropriate cost-effective labour market and social policies that support workers in danger of long-term unemployment.

Instability in sovereign debt markets and overheating in emerging market economies are significant risks that may jeopardise the recovery. Monetary policy should be returned to normal as soon as possible and support removed. Exit strategies must take account of fiscal consolidation so as not to put pressure on interest rates. Much of the turbulence has been calmed by the response of euro-area governments and the European Cenral Bank though underlying weaknesses remain and structural adjustments will have to be made.

Euro area architecture will have to be strengthened considerably to get rid of doubts about the viability of monetary union raised by the sovereign debt crisis. Domestic policies should be strengthened for more competitiveness but fiscal discipline is also important. Spending cuts must preserve the cost-effectiveness of programmes helpful to growth. Consolidation strategies must include structural reforms for growth.

Reforms of labour and product markets should be implemented for an increase in output, innovation and to prevent increases in unemployment.

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