Global economic forecast: Recovery is growing, but relatively weak, says OECD
The Organization for Economic Cooperation and Development doubled its forecast for the global recovery from the deepest recession in decades. But even its new numbers call for a remarkably weak economic rebound. "The good news is that the recovery -- albeit a weak one -- is under way," OECD Secretary-General Angel Gurría said in the group's latest semi-annual report.
Weak, indeed. The jobless rate is expected to peak in the first half of 2010 in the U.S., but it may not be until 2011 that unemployment begins to fall in the euro area, according to the OECD's forecasts. U.S. GDP is only expected to rise 2.5% in 2010 and 2.8% in 2011.
The figures from the OECD point to what might be called a non-recovery recovery. Many economists have forecast that GDP in the United States will rise 4% or more next year and will improve even further after that. A rapid recovery is absolutely necessary for the nation if it is to effectively tackle its growing deficit and debt problems. The federal stimulus package is costing $787 billion as it is now. Members of Congress are suggesting that a second wave of government spending may be necessary to bring unemployment down from the 10%-plus level. The hole created by all this government spending can only be filled if tax revenue from individuals and businesses begins a significant rise. If that rise does not occur, the only short-term alternatives for solving the problem are sharp budget cuts or big increases in tax rates.
Increasing taxes could be counterproductive. Consumers facing higher taxes are less likely to consume. Businesses facing larger tax bills are not likely to hire.
Slow GDP growth paints the government into a corner. Long-term economic stagnation would almost certainly cause ongoing growth in the national debt, which means a larger and larger portion of the federal spending would go to paying debt service.
A growth rate of 2% is also meager enough that any additional trouble in the economy could push it into a second recession. Unemployment is the most likely burden which could drag GDP back into negative numbers.
At first glance, the OECD figures seem to be encouraging. At second glance, they look otherwise.
Douglas A. McIntyre is an editor at 24/7 Wall St.