The economic rebound in developed economies is still timid and not enough to make a dent in unemployment, the Organization for Economic Co-operation and Development said Thursday.

"The good news is that the recovery — albeit a weak one — is underway," Angel Gurria, the group's secretary general, said in its latest economic outlook. But "with millions of jobs lost and public budgets under strain, governments will have to tread carefully in the months ahead."

The Paris-based watchdog of industrialized nations raised its forecast for economic growth next year. It now predicts 2010 growth at a 1.9 per cent pace in its 30 member countries, which include Canada, the United States, Japan, Germany and Britain.

That's likely not enough to eat into rising unemployment in the developed world for some time. The jobless rate is expected to peak in the first half of 2010 in the United States, but it take until 2011 for unemployment to fall in the euro area, the OECD said.

The report says the recovery has been tepid because economic activity is being held back by households and businesses repairing their finances and reducing their debts.

Unemployment will remain on the rise in the world's developed economies until at least 2010, the Paris-based OECD predicts. (OECD)

Finance Minister Jim Flaherty said the OECD's assessment shows the recovery remains fragile and that while "there are tentative signs of recovery ... we need to be cautious…

"I am confident that this quarter will be positive. I am confident that next quarter will be better."

Flaherty promised to continue with stimulus measures through to the end of 2010.

The OECD also reduced its forecast for economic contraction this year among its member countries to 3.5 per cent from an earlier 4.1 per cent.

Regionally, the OECD predicts the U.S. economy will expand at a rate of 2.5 per cent in 2010, up from a June forecast of 0.9 per cent. It also expects a smaller contraction this year: a 2.5 per cent fall in output compared with an interim September forecast of a 2.8 per cent drop.

In Europe, the economies of the 16 countries sharing the euro are now expected to grow by 0.9 per cent next year, better than a June forecast of zero growth.

However, the OECD is predicting a greater contraction of four per cent for this year, more than the 3.9 per cent it calculated in September.

Japan's economy will grow by 1.8 per cent next year compared with a June forecast of 0.7 per cent. The OECD reduced its prediction for a contraction this year to 5.3 per cent, compared with the 5.6 per cent rate foreseen in September.

Though acknowledging that unprecedented stimulus measures appear to have averted disaster, the organization warned about letting those conditions linger for too long.

"Radical policy action will be required in the years to come to restore sound macroeconomic balance, healthy growth and low unemployment," OECD chief economist Jorgen Elmeskov said.