Canada, U.S. lead G7 recovery while Europe falters

[abc]

Canada, U.S. lead G7 recovery while Europe falters

BY ERIC LAM, MARCH 29, 2012

North America and the United States are growing faster but the eurozone
is still in a weak spot, the OECD said Thursday.

Economic growth in the G7 countries is expected to be stronger through
the first half of 2012, with Canada and the United States leading the
charge while the eurozone continues to find its way back to stability,
the Organization for Economic Co-operation and Development said Thursday.

The OECD’s interim assessment forecasts the collective economies of the
seven most powerful countries in the world to come in at 1.9% in each of
the first two quarters of the year, an improvement on the 1.1% registered
in the fourth quarter of 2011.

“Our forecast for the first half of 2012 points to robust growth in the
United States and Canada, but much weaker activity in Europe, where the
outlook remains fragile,” Pier Carlo Padoan, chief economist with the
OECD, said in a presentation in Paris. “We may have stepped back from the
edge of the cliff, but there’s still no room for complacency.”

The United States is forecasted to grow 2.9% and 2.8% respectively in the
first two quarters on firming employment, stronger consumer confidence, a
rebound in the stock markets and credit growth, while Canada’s economy
will grow 2.5% in both quarters.

As well, Japan is expected to rebound strongly to 3.4% GDP growth in the
first quarter on firmer industrial production and a weaker yen, although
the second quarter is forecasted to pull back to 1.4% growth.

However, in Europe prospects remain weak. Germany, France and Italy are
expected to post a collective weighted 0.4% decline in GDP growth in the
first quarter, following a 0.8% drop in the previous quarter, before
rebounding to modest 0.9% growth in the second quarter of 2012.

Italy in particular looks to be mired in recession, forecasting -1.6% and
-0.1% growth in the first two quarters of the year on top of two
consecutive quarters of decline through the latter half of 2011.

The German economy will accelerate through the first half, with growth of
0.1% followed by 1.5%, while France’s economy will shrink 0.2% before
growing by 0.9%, the OECD said.

Mr. Padoan warned a number of factors will threaten the recovery,
including rising oil prices, slowing activity in China and other emerging
markets, and weakening global demand leading to a slowdown in trade
growth.

Oil prices, up more than US$10 a barrel since February alone, will likely
add 25 basis points to inflation in OECD countries and take off between
10 and 20 basis points from GDP growth on average over the next year.

The eurozone credit crisis remains a very real concern with Spain
emerging as the next vulnerable country soon after Greece received its
long-awaited €130-billion bailout earlier this year.

“Government action will continue to be critical, particularly in the euro
area, where unfinished policy business on fiscal frameworks, financial
firewalls and fundamental structural reforms must move ahead,” he said.

Meanwhile, low interest rates will likely be the norm among OECD
countries for the foreseeable future.

“There is scope for monetary policy easing in emerging market economies,
in light of the recent signs of softening in economic activity and
declining inflation,” Mr. Padoan said in his report.

The OECD is expected to release its next full economic outlook in May.