Tags: euro | economy | Japan | recovers

US, Japan to Drive G7 Recovery as Euro Zone Lags

Thursday, 28 Mar 2013 11:30 AM

 

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The U.S. and Japan are leading a rebound in advanced economies while the euro zone lags, the OECD said on Thursday, warning financial markets may be getting ahead of themselves by banking on a more solid recovery.

Though the outlook has finally strengthened for the Group of Seven economies, it is too early for central banks to stop easy money conditions, the Organisation for Economic Co-operation and Development said.

"The bottom line is that we are moderately more optimistic," OECD chief economist Pier Carlo Padoan told Reuters. "We see growth firming in the U.S., we see more growth in Japan thanks to new measures, and we see more growth in Germany."

The Paris-based economic think-tank forecast that G7 economies would grow on average 2.4 percent in the first quarter on an annualised basis, after shrinking 0.5 percent in the previous three months.

The pace of growth is set to cool in the second quarter to 1.8 percent, it said.

With confidence returning only cautiously, Padoan warned that there was a growing "disconnect" between the still fragile economic recovery and buoyant financial markets.

"This signals in our view some forms of excessive risk taking, including new ways through which markets look for yields, and may be creating some problems down the road," Padoan told a news conference.

The U.S. is seen leading growth among advanced countries, with the world's biggest economy expected to expand by 3.5 percent this quarter, slowing to 2 percent growth in the second quarter.

New measures to boost the Japanese economy would help it grow 3.2 percent in the first quarter and 2.2 percent in the second quarter. 

DIVERGING FORTUNES

In the euro zone, growth rates are set to diverge widely with regional powerhouse Germany seen bouncing back after shrinking at the end of 2012, to grow 2.3 percent in the first quarter and 2.6 percent in the second quarter.

In contrast, France, the currency bloc's second-biggest economy, is likely to contract 0.6 percent in the first quarter before emerging from recession in the second quarter.

Italy's long-running recession is seen easing though the country's economy is still forecast to contract 1.6 percent in the first quarter and 1 percent in the second.

Padoan said euro zone countries were likely to miss public deficit targets this year, but remained committed to efforts to cut their structural deficits, which removes swings in the business cycle.

With inflation low, Padoan said the European Central Bank would be justified in cutting interest rates and an explicit indication of its future intentions for rates may be needed.

The OECD welcomed Japan's plans for more aggressive monetary easing whereas in the U.S. the need for further easing was beginning to subside, it said.

"In the United States the benefits of further QE (quantitative easing) might be declining while the costs of further QE might be rising," Padoan said.

© 2014 Thomson/Reuters. All rights reserved.

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