As Advanced Economies Grow, Emerging Ones Struggle

Developed economies are staging a comeback after years of lagging growth, but a slowdown in emerging countries will keep global growth low this year, the Organization for Economic Cooperation and Development said Tuesday.

In its interim assessment, the organization was more upbeat than it has been in recent years, as debt and financial crises in Europe and the U.S. hammered growth.

Deputy chief economist Joergen Elmeskov said the gross domestic product of the seven leading economies, known as the G-7, has been improving since shrinking in the last quarter of 2012, and will grow at an annualized rate of about 2.5 percent in the second half of this year.

“It’s moderate, but it’s still a better outcome than what we were used to in the recent past,” he told journalists as the report was released.

The report raised its estimates for growth in the two largest economies that use the euro: It predicted Germany would grow 0.7 percent this year, up from May’s prediction of 0.4 percent. France should see 0.3 percent growth, as opposed to the contraction expected in May.

But it lowered its forecast for the U.S. to 1.7 percent, from its estimate in May of 1.9 percent.

China, the biggest of the emerging economies, was seen growing 7.4 percent, down from a previous forecast of 7.8 percent.

The organization called on central banks to continue with the loose monetary policies that have been credited with helping economies rebound.

“Monetary policy clearly needs to remain strongly expansionary,” especially in Europe and Japan, said Elmeskov. He added that the United States can start winding down its bond-buying plan, which has been supporting the economy by keeping interest rates down, but should do so slowly and carefully.

Already, it said, expectations that the U.S. would ease its monetary stimulus program have caused an increase in long-term market interest rates and started weighing on emerging economies. With unemployment in many parts of the world still high, businesses and consumers still need the low interest rates and easier access to loans that loose monetary policy provides, the report said. A sharp pullback could sink the recovery.

The OECD also warned that even though the economy of the countries that use the euro has come out of recession, the region is still fragile and could drag down global growth.

While many emerging economies are slowing, the organization said it thought the worst was over in China.