OECD trims growth forecast for next year

THE ORGANISATION for Economic Co-operation and Development (OECD) has lowered its growth forecast for next year and cautioned the Group of 20 governments (G20) against unilateral currency interventions.

The economy of the OECD’s 33 members will grow between 2 per cent and 2.5 per cent next year, the Paris-based group said in a report issued yesterday ahead of a summit of G20 leaders in Seoul this month.

That compares with a May forecast for 2011 growth of 2.8 per cent. The OECD, which advises members on policy, cautioned G20 leaders that unilateral intervention in foreign-exchange markets risked stoking protectionism and harming the world economy.

“Continued monetary easing in many advanced economies prompts capital flows to emerging economies where they risk creating asset bubbles while putting upward pressure on their exchange rates,” the OECD said.

“The recent unilateral interventions in foreign exchange markets and the resulting volatility could prompt protectionist responses.”

G20 leaders should reach a common understanding on how to reduce global trade imbalances, the organisation said.

The OECD also called for increased efforts to reduce public debt to sustainable levels, and said the Federal Reserve and the European Central Bank should hold off “normalising” exchange rates until at least 2012. – (Bloomberg)