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‘US economy better, but fissures appear’

world Updated: Jun 27, 2012 23:04 IST
Dominic Rushe
Dominic Rushe
Hindustan Times
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The US recovery remains on track but “fissures” have begun to appear in the world’s largest economy as it struggles with record long-term unemployment and income inequality, according to a report by the Organisation for Economic Co-operation and Development (OECD).

The international economist group is more bullish on the economy than the Federal Reserve chairman Ben Bernanke, who recently downgraded his forecasts for the US economy. And the report may prove useful ammunition for the Obama administration as the economy emerges as the key battleground for the 2012 election.

The OECD offered support to President Barack Obama’s plans to cut tax breaks for America’s wealthiest, a plan known as the ‘Buffett rule’ after its championing by billionaire investor Warren Buffett.

Growth in the US will remain moderate this year but the OECD report concludes that America’s economic recovery has “gained momentum”. Consumer and business spending have risen and unemployment, though still high at 8.2%, has fallen nearly two percentage points from its peak in 2009.

“Even with these substantial improvements, however, the recovery is far from complete,” the OECD warns. The US housing market has picked up but the large overhang of unsold homes and “the ongoing tide of foreclosures will continue to put downward pressure on house prices,” according to the report.

Europe’s economic crisis and the looming political fight over the “fiscal cliff” — the December 31 expiration of Bush-era tax cuts and imposition of automatic spending cuts — also remain serious threats, the report warns.

The slow pace of recovery in construction, normally an important source of growth following recessions, is also a worry, said the OECD. In addition, “uncertainty about the sustainability of the recovery has restrained business investment and slow growth in some trading partners has held back exports.”

The report warns that long-term unemployment has become a serious issue for the US. About 5.3 million Americans, 40% of unemployed people, have been out of work for 27 weeks or more. More training programmes are needed to get the long-term unemployed back to work, says the OECD.

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