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OECD projects global economic growth at 4.2%

business Updated: May 25, 2011 16:09 IST
PTI
London

The global economy is projected to expand by 4.2% this year, but rising oil and commodity prices and the European debt crisis could hurt the overall recovery, according to Paris based think tank OECD.

The expected growth of the world economy is much lower than the 4.9% rate achieved in 2010.

In its semi annual economic outlook released on Wednesday, the Organisation for Economic Cooperation and Development (OECD) said the global recovery is becoming self sustained and more broad based.

Noting that trade and investment are gradually replacing fiscal and monetary stimulus as principal drivers of economic growth, the OECD said recovery is happening at different speeds across countries and regions.

OECD is a grouping of 34 developed and developing nations that account for over 60% of the global economic output.

"The world Gross Domestic Product (GDP) is projected to increase by 4.2% this year and by 4.6% in 2012," the report said.

In the OECD region, the GDP is anticipated to rise 2.3% this year and 2.8% in 2012.

"This is a delicate moment for the global economy and the crisis is not over until our economies are creating enough jobs again. There is also some concern that if downside risks reinforce each other, their cumulative impact could weaken the recovery significantly, possibly triggering stagflation in some advanced economies," OECD secretary general Angel Gurria said.

Stagflation generally refers to high inflation in times of weak growth. According to the grouping, a further rise in in oil and commodity prices, financial vulnerabilities in the euro area and "a stronger-than-projected slowdown in China", among other factors, could hurt the global recovery.

The outlook comes at a time when Europe is grappling with a spiralling debt crisis in Greece and the weak financial situation in Portugal, Ireland and Spain.

"Vibrant domestic demand growth, negative supply shocks and strong capital inflows in non-OECD economies are generating inflationary pressures, prompting policy restraint that could slow the recovery," the report noted.

Going by estimates, government debt is set to rise to close to 96% of the GDP average in the euro area in 2011 and go above 100% of the GDP in the OECD as a whole.

"High public debt levels, which have been shown to have a negative impact on growth, must be stabilised and then reduced as soon as possible...," Gurria said.