08/09/2011
By Matt Ritchie
New analysis from the OECD has shown economic recovery across the European Union is gaining pace, though is likely to be dampened by a range of factors.
In an economic outlook report released today, the organisation said confidence is strengthening in the EU, and financial conditions have improved as recovery in domestic demand gains momentum and exports continue to support growth.
Looking ahead, recovery is expected to slow due to fiscal consolidation, on-going private sector balance sheet adjustment and higher energy prices.
The OECD argued that "prolonged" fiscal consolidation is needed in most EU countries to stop rising debt-to-GDP ratios and reduce them to "more prudent" levels.
Furthermore, the report said that monetary policy stimulus should be gradually withdrawn once underlying inflationary pressures begin to emerge.
It also called for reforms of labour and product markets, and said that structural reforms would make the euro area more resilient when combined with reforms of fiscal and macro-prudential polices.
On the global outlook, the report found that the global economic recovery has stalled in the major industrialised economies. Falling household and business confidence had affected world trade and employment.
Presenting the interim economic assessment, OECD chief economist Pier Carlo Padoan said: "Growth is turning out to be much slower than we thought three months ago, and the risk of hitting patches of negative growth going forward has gone up."
However, growth remained strong in most emerging economies albeit at a more moderate pace than previously.
Despite the downbeat global outlook, the OECD said fiscal and structural reforms being undertaken by a number of OECD countries should boost confidence.
The organisation recommended central banks maintain policy rates, and barring signs of recovery, consider lowering rates when there is scope. Other monetary policy responses to the crisis could include further central bank interventions in securities markets, strong commitments to keeping interest rates low over an extended period and the withdrawal of monetary tightening in emerging economies.
"The policy imperative is to rebuild confidence," Padoan said.
Other stories you may find of interest:
Sustainability a priority for APG
Dutch pension fund manager APG has published its updated corporate governance and voting policy, setting out its approach to responsible ownership and how this translates into practice
SRI becoming mainstream
A new survey from sustainability think tank Eurosif has revealed 56% of corporate pension funds have a socially responsible investing (SRI) policy in place
