OECD Raises Economic Outlook, Despite Debt and Inflation Worries

Ask the folks at the Organisation for Economic Co-operation and Development if a glass is half empty or half full, and they are likely to pick half empty. And that, in essence, sums up the economic report released Wednesday for the 31 participating countries in the OECD. The report cited volatile sovereign debt issues and festering inflation in emerging markets as areas of concern, despite its upward revisions for its members' gross domestic product forecasts.

The organization, a group of democratic, free-market oriented nations that works to boost employment, living standards and sustainable economic growth worldwide, bumped the GDP growth forecast for its member countries to 2.7% this year, up from its November forecast of 1.9% growth for 2010. It now also predicts growth will improve slightly from that in 2011, with a 2.8% increase, better than its previous forecast of 2.5% for next year.

Here's a look at the organization's GDP projections and their percentage change from the previous year:

The report suggests that the booming growth rates of China and other emerging nations are helping to pull other countries out of the recession. But concerns weigh heavy that this faster than expected economic improvement for OECD countries may get sidelined by volatility in the sovereign debt markets and a rapid rise in inflation in emerging nations.

China and India Could Overheat

Earlier this month, Greece, entangled in a death spiral of debt, scored a bailout agreement from its European neighbors and the IMF worth upwards of $160 billion to address its financial woes. But in its report, the OECD noted that the instability in sovereign debt markets pointed up the need for European nations to strengthen their financial systems and boost their fiscal discipline.

The OECD also warned of a potential boom-bust scenario that could emerge if economies in emerging markets like China and India overheat, which could, in turn, affect the growth paths of other countries. In February, consumer prices in China jumped 2.7%, a fairly sizable increase and that nation's highest in 16 months.

"This is a critical time for the world economy," said OECD Secretary-General Angel Gurria in a statement. "Coordinated international efforts prevented the recession from becoming more severe but we continue to face huge challenges. Many OECD countries need to reconcile support to a still fragile recovery with the need to move to a more sustainable fiscal path. We also need to take into account the international spill-overs of domestic policies. Now more than ever, we need to maintain co-operation at an international level."

The OECD cautioned that without strong policy decisions, lackluster GDP growth, as well as high fiscal deficits and unemployment, could result.