Canada's economic growth will moderate: OECD

The global economic recovery is uneven and under threat because of joblessness, inflation and other factors, a major international group says.

The global economic recovery is uneven and under threat because of joblessness, inflation and other factors, a major international group said Wednesday.

The Organization for Economic Co-operation and Development said in a report it publishes twice a year that it expects the world economy will expand by between 4.25 and 4.5 per cent this year.

That's a healthy topline number, but the growth is far from even, since some of the world's largest economies are expected to shrink, while others pick up the slack.

Angel Gurria, the OECD secretary general, says Canada's economic growth will moderate over the medium term. (Virginia Mayo/Associated Press)

Prospects have improved for the United States, with a predicted growth of 2.6 per cent, and the eurozone, at two per cent, the OECD said.  

But Japan's forecast is not as rosy. Japan's GDP is expected to contract by 0.9 per cent, in large part because of the earthquake and tsunami that hit on March 11.

The Paris-based group had predicted last November that real GDP in Japan would grow at a modest 1.7 per cent, on a par with the eurozone, and that the United States would expand by 2.2 per cent.

Canadian outlook

Canada's outlook compares relatively favourably.

"Growth is projected to moderate somewhat over the near term, as international supply chains suffer from the effects of the Japanese disaster, highly indebted households pare back spending and housing markets soften," the agency said. 

But Canada's resource-rich economy will improve as the global economy gains traction and unemployment starts to recede, the OECD said.

The agency expects Canada's economy will expand by three per cent in 2011 and 2.8 per cent next year. That's a slight upgrade for this year, and a downgrade for next, since the OECD's last outlook in November.

But rising debt loads and a softening housing market could take some of the wind out of the domestic economy's sails. The agency urged Ottawa to work to reduce structural deficits.

The OECD also recommended that the Bank of Canada begin hiking interest rates sooner rather than later to fight inflation.

"The Bank of Canada should soon resume tightening at a moderate pace," the report said.

Globally, the biggest risks stem from a fresh jump in oil prices because of political unrest in the Middle East, disruption of the global manufacturing chain because of Japan's earthquake, and the possibility of a sharper than predicted slowdown in China if Beijing's efforts to stem inflation strangle lending.

China isn't an OECD member but the group examines that country's economy anyway because of its growing economic clout.

Reducing government debt should be a priority in the coming months, the OECD said, citing in particular the United States and Japan.

"In some countries this will require unblocking political stalemate that makes fiscal policy unpredictable over both short and long horizons."

Europe, too, remains in a fragile state because of the heavy cost of financing bailouts for Greece, Portugal and Ireland.

GDP growth in the OECD's 34 member states, comprising most of the world's major economies, remained steady at 2.3 per cent in 2011.

Whether this will translate into genuine improvements in living standards is unclear. The OECD has acknowledged that GDP is a limited gauge that doesn't reflect many changes in quality of life.

Earlier this week the organization launched a separate index to measure people's expectations and governments' abilities to meet them.

But the OECD said it would cling to GDP as a key measure of the speed, if not direction, of the global economy for the foreseeable future.

With files from The Associated Press