OECD trims US, China outlook, warns on monetary policy

PHOTO: OECD trims US, China outlook, warns on monetary policy

PARIS - The OECD trimmed its growth forecasts for China and the United States on Tuesday, warning that lasting recovery is still not firmly on its feet despite a rebound in some countries.

A central risk to sustainable recovery is how the US Federal Reserve bank winds down its easy-money policies, the OECD said, a concern which has already upset several emerging economies.

"It is necessary to continue to support demand, including through unconventional monetary policies, in order to minimise the risk of the recovery being derailed," it said in its Interim Economic Assessment.

The OECD endorsed the Federal Reserve's plans to begin gradually reducing its the monetary stimulus it injects into the US economy from its current level of US$85 billion (S$108.62 billion) per month.

It said Japan should keep up its stimulus efforts until deflation ends, while the eurozone should be ready to undertake further monetary easing if the recovery fails to take hold.

The OECD said the European Central Bank may need to undertake measures to boost sluggish lending such as "providing direct incentives to banks to extend credit to the real economy."

Despite subdued inflationary pressures in China, the OECD recommended caution over monetary easing if growth slows due to the fast increase in lending.