OECD says Europe's recovery will be 'gradual'
Posted: 20 November 2009 0026 hrs

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PARIS : The eurozone has snapped out of recession sooner than expected but recovery will be slow, with annualised growth of 0.6 percent in the fourth quarter, the OECD said on Thursday.

The Organisation for Economic Cooperation and Development (OECD), a Paris-based grouping of 30 of the world's richest nations, also urged governments to start withdrawing stimulus measures from late 2010.

The 16-nation eurozone emerged from recession in the third quarter, with growth of 0.4 percent compared with the previous three months. But against the same quarter of 2008, momentum shrank by 4.1 percent, according to European Union figures.

"The sharp contraction in euro area activity appears to have ended sooner than anticipated ... However, headwinds from financial sector deleveraging and rising unemployment suggest that the recovery will be gradual," the Organisation for Economic Cooperation and Development said in its latest assessment.

The OECD also called longer-term for eurozone governments to start reducing their deficits and implementing policies to make the European single market more efficient in order to boost economic growth.

The group also forecast a contraction in the eurozone economy of 4.0 percent over the whole of 2009 and growth of 0.9 percent in 2010.

"Low core inflation, tight credit conditions and a persistent negative output gap make it appropriate for the current expansionary monetary policy stance to be maintained until late 2010," it said.

"Thereafter, emergency credit support measures should be withdrawn and policy rates gradually increased," it added, referring to interest rates.

The OECD report also warned that while financial conditions have improved from the beginning of the year, there are still doubts about the banking sector.

"Concerns remain about the health of the European banking sector and in particular whether banks are sufficiently well capitalised to weather a significant increase in defaults," it said.

Eurozone unemployment, it said, would also continue to rise into 2011, weakening the recovery, with the unemployment rate forecast at 9.4 percent for this year, 10.6 percent for 2010 and at a peak of 10.8 percent for 2011.

The countries that share the European single currency, the euro, are: Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.

Figures released last week showed that both the eurozone and the wider 27-nation European Union, the world's biggest trading bloc, joined Japan and the United States in returning to growth in the third quarter.

- AFP /ls