WASHINGTON -- Growth picked up in the second quarter in the U.S., Europe and other major advanced economies but has slowed in China and other key emerging nations, which will lead to sluggish global output, the Organization for Economic Development and Cooperation said Tuesday.
Concerns about a pullback on stimulus efforts by the Federal Reserve has triggered financial market turbulence in emerging economies such as India and Indonesia and fueled currency depreciation and an outflow of capital because of rising borrowing costs, the group said in a new report.
Consequently, the boost that emerging nations have given to the global economy will be reduced in coming months and growth will be uneven, the report said.
“The gradual pick-up in momentum in the advanced economies is encouraging but a sustainable recovery is not yet firmly established," said Jorgen Elmeskov, deputy chief economist of the OECD.
The group's 34 member nations have the world's most advanced economies.
Elmeskov warned that the economy in Europe, which is emerging from recession, is still vulnerable to financial shocks, and that the global economy could take a hit if there is a standoff in the U.S. over the federal budget or raising the nation's debt limit.
But the report said it would be appropriate for the Fed to "gradually reduce" the size of its monthly bond purchases as long as it continued to keep short-term interest rates at their near-zero level.
Fed policymakers could announce a reduction in their $85 billion in monthly bond purchases this month.
The OECD slightly downgraded its forecast for U.S. economic growth this year, to 1.7% from a 1.8% projection in May. But that would still put it among the best performers of the world's advanced economies, along with Canada at 2%, Japan at 1.6% and Britain at 1.5%.
The report said the 17-nation Eurozone no longer is in recession but that growth remains weak in many countries there.
Advanced economies overall saw stronger growth from April through June than forecast and that pace is expected to continue in the second half of the year, the OECD said.
Although growth is forecast to pick up to about 8% in China in the second half of the year, that pace would be slower than in recent years. And many other emerging economies, such as Brazil, Mexico and Turkey have seen their budget deficits rise as currency depreciation and rising borrowing costs have led money to flow out of those nations, the OECD said.
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