Just how modest will the recovery be?
The Organization for Economic Cooperation and Development said Thursday "that the recovery from the global recession is likely to arrive earlier than had been expected a few months ago but the pace of activity will remain weak well into next year."
Growth across the Group of Seven countries is forecast to fall by 3.7 percent this year, lower than the 4.1 percent drop projected in June. Growth in the U.S. is expected to drop 2.8 percent, unchanged from previous estimates. The OECD expects the recovery to likely "be modest for some time to come." Among the factors holding back the economy are low levels of corporate profitability, anemic growth in labor income and corrections in the housing market.
In the U.S., officials at the Federal Reserve are grappling with an economy pulling out of a recession "with little momentum" as they try to wind down housing-debt purchases and keep interest rates near zero, according to Bloomberg News. Economists argue that the Fed will need to see inflation stabilize and labor markets improve before starting to raise interest rates.
On the plus side, the economy is improving. The OECD has seen a narrowing of corporate bond spreads, a rebound in equity markets and an tightening of bank lending standards which many experts blame for contributing to the economic meltdown. Bank lending, though, continues to decline and concerns about the health of the banking system remain even as housing markets in the U.S. and U.K. begin to show some signs of improvements.
"There's still a lot of caution about the recovery as there are some quite significant headwinds Jorgen Elmeskov, the OECD's acting chief economist, told Bloomberg News.