Economic activity will gradually revive over the next two years, but that the recovery will be uneven and unemployment will remain persistently high, the Paris-based Organization for Economic Co-operation said Thursday.

The OECD predicts that GDP across OECD countries will rise by 2.3% in 2011 and 2.8% in 2012. In the United States, activity is projected to rise by 2.2% in 2011 and then by 3.1% in 2012.

Canada is forecast to grow similarly, following 3.0% growth this year, the economy is expected to slip to 2.3% in 2011, before returning to 3.0% growth in 2012.

Euro area growth is forecast at 1.7% in 2011 and 2% in 2012, while in Japan, GDP is expected to expand by 1.7% in 2011 and by 1.3% in 2012.
 
Emerging markets are expected to grow at a quicker pace than the OECD, helping to lift global trade growth to more than 8% annually in 2011 and 2012, the OECD says.

However, the group points out that uneven growth will add to global imbalances, which are among the most significant threats to the recovery. It also highlights other downside risks that could derail the recovery, including the potential for renewed drops in real estate prices, most notably in the U.S. and the United Kingdom, high sovereign debt in some countries and possible abrupt reversals in government bond yields.
 
The main challenge facing governments today is moving from a policy-driven recovery toward self-sustained growth, it says. “As stimulus is withdrawn, governments will have to provide a credible medium-term framework, to stabilise expectations and strengthen confidence, particularly for the private sector,” OECD secretary-general, Angel Gurría, said. “Enhanced confidence could result in a faster-than-projected recovery.”

For Canada, the OECD says that, “Barring a further deterioration in labour market conditions, governments should begin to withdraw stimulus and reduce structural deficits as planned over the course of 2011-12 to maintain investor confidence in the path towards public debt sustainability.”

“While monetary policy currently remains accommodative, the Bank of Canada should delay further rate hikes until early 2011 when a recovery in private demand is expected to gain firmer traction, after which a gradual pace of tightening would be appropriate,” it adds.

Overall, the OECD recommends that countries adopt a combination of coordinated macroeconomic and structural policies to ensure the conditions for long-term growth. “Fiscal consolidation is needed to reduce government deficits and debt, while making room for future fiscal policy action. Structural reforms are needed to boost growth and employment, and to contribute to budget consolidation and external rebalancing. Monetary policy must gradually return to a more normal stance,” the OECD says.

IE