The OECD and World Bank global economic updates released today point to progress in the global economic recovery, but highlight the uneven nature of the recovery and caution against too rapid a withdrawal of stimulus measures.
These reports provide more evidence that Australia continues to outperform the developed world, but points to the challenges ahead for the global economy.
The OECD, in its Interim Economic Assessment, says that economic activity has recovered in most of the major OECD economies in the last quarter of 2009, although growth is set to slow in the first half of 2010 as support from the inventory cycle begins to fade and some stimulus measures come to an end.
The OECD Report states that:
"Despite some encouraging signs on activity, the fragility of the recovery, a frail labour market and possible headwinds coming from financial markets underscore the need for caution in the removal of policy support."
The OECD advises that fiscal consolidation should start in 2011 or earlier in some economies. However, it also cautions that this process should proceed gradually so as not to undermine the economic recovery.
In Australia stimulus is being withdrawn faster than most other advanced economies, and ahead of the timetable set by the OECD for developed economies. The withdrawal of fiscal stimulus is expected to detract around one percentage point from Australian GDP growth over 2010.
In contrast to the major advanced economies, the World Bank notes that growth in developing East Asia is recovering strongly. The World Bank's East Asia and Pacific Economic Update says that the strong stimulus measures put in place by governments in the region helped limit the impacts of the global recession.
Like the OECD, the World Bank report also emphasises the need for caution in removal of policy support given the still fragile nature of the global recovery.
The World Bank report also points out the need for renewed structural reform to ensure countries can grow strongly over the medium term.
Sustainable global growth will be one of the major topics of the G20 Finance Ministers Meeting that I will attend in Washington DC on 23 April. At this meeting Finance Ministers will continue work on the G20 'Framework for Strong, Sustainable and Balanced Growth' and in particular the types of policy adjustments that will underpin the strength and growth potential of economic systems emerging from the crisis. Finance Ministers will also continue work on financial regulation and international financial institution reform, along with a number of other issues.