OECD lauds India's smart economic recovery

"The Indian economy has weathered the global economic downturn relatively well," the Paris-based club of the leading industrialised nations said in its half-yearly economic outlook published on Thursday.

After slowing sharply in late 2008, the economy recovered smartly during the first half of 2009 and the recent "high-frequency indicators suggest that the momentum is strengthening," the OECD said.

"In the near-term, the on-going recovery will be only modestly hampered by poor monsoon rainfall," it added.
The OECD forecasts the economy to grow more than 7 per cent next year and by 7.5 per cent in 2011. For the current year, the organisation expects a growth of 5.6 per cent.

However, it warned that inflation has been rising since mid-2009 and it is expected to remain high over the projection period.

Given the resurgence of inflationary pressures so early into the recovery process, a key challenge facing the policymakers is ensuring a timely withdrawal of fiscal and monetary policy stimulus,” the OECD said.

The 30-member bloc expressed the view that reining in the large fiscal deficit, which has widened further this year, will be difficult in view of "both the magnitude and the permanent nature of recent increases in spending."
The OECD forecast, which comes shortly after the IMF prediction of a 6.5 per cent growth for the economy in 2010 on the basis of strong domestic demand, confirms the widely held view that the Indian economy is now firmly back on its growth course.
The IMF anticipates the economy to grow by 5.33 per cent this year.

On the global recovery, it said the global economic outlook is much better now than six months ago and it expects growth and recovery in almost all regions in 2010. Economic recovery has now spread to all 30 member-nations of the OECD but it will "fluctuate around a modest underlying rate for some time to come," it said.

Growth will be held back by "substantial headwinds" and the main danger for the OECD economies will be rising unemployment and deflationary pressures. It will take some time for the recovery to become strong enough to reduce unemployment, the OECD said.

In the US, unemployment level will peak in the first half of 2010 before the labour market starts benefiting from the recovery driven by stimulus measures, improvements in financial conditions, non-OECD demand growth and stabilisation of the housing market, it said.

The European economies also will benefit from the same growth drivers as in the US but work-sharing schemes which cushioned employment in the downturn may also weaken growth, it noted. adding unemployment in Europe is expected to peak only by the end of 2010 or early 2011.
The upturn in the major non-OECD countries, especially in Asia and particularly in China and in India "is now a well-established source of strength for the more feeble OECD recovery," it said. It forecasts 10 per cent growth for China next year.
Among the other key non-OECD countries, Brazil is expected to expand by around five per cent after stagnating this year while Russia may also achieve a similar level of growth next year, it said.
The strength of the upturn in these countries "reflects both the limited direct exposure to the financial origins of the crisis and the strong policy stimulus these countries were in a position to apply," the OECD said.
A major policy issue many of these nations facing now is whether to withdraw the stimulus "to avoid igniting assets or general price inflation," the body concluded.