By Chris Cermak

WASHINGTON (MNI) – The OECD Thursday revised up growth estimates
for the United States and Japan over the first half of 2012 but said the
situation in the Eurozone was “fragile,” with output still low or
shrinking in its top three economies.

“The forecasts for the first half of 2012 point to a decoupling of
GDP growth between Canada and the United States on the one hand and
Europe on the other: Robust growth is projected for the former, whereas
in Europe the outlook remains weak,” said an OECD report on the
near-term outlook for G7 countries, which updated some forecasts from
the last OECD-wide economic projections in November.

The report notes that monetary policy remains “very supportive”
across the OECD and that this accommodation “will be warranted for a
considerable time to come, as will maintaining support through
quantitative measures.”

There is also “scope for monetary policy easing” in emerging
economies amid signs of “softening in economic activity and declining
inflation,” the report said.

The OECD forecast for average GDP growth across the G7 is for an
annual rate of 1.9% in the first and second quarters of this year.

The forecast for US GDP in the first quarter was revised up to
2.9%, from 1.7% in November, and to 2.8% in Q2 from 1.9%. Canada’s
growth rate was projected at 2.5% for both quarters.

Japan’s first-quarter growth is expected to rebound from a weak end
to 2011, “thanks to firmer industrial production,” the OECD said. It
revised Japanese GDP growth to 3.4% for Q1, up sharply from the 1.8%
forecast in November, while Q2 was revised down to 1.4%, from 1.8%.

OECD Chief Economist Pier Carlo Padoan said in a web conference
that growth was “firming” in the United States and Canada. Japan was
also showing “some growth” at the start of 2012, while Europe “is
actually much more delicate,” he said.

“The situation with respect to say a few months ago is a little bit
better for the United States,” Padoan said. In the euro area, “the
situation remains still fragile, although we are not so close to the
cliff as we used to be.”

The OECD did cite signs that Germany’s growth rate “may accelerate”
in the first half, and it actually forecast quite a sharp jump in
growth, from 0.1% in Q1 to 1.5% in Q2. France’s GDP was projected to
fall 0.2% in Q1 and then accelerate handsomely to +0.9% in Q2, while
Italy’s was forecast to decline 1.6% in Q1 and drop another 0.1% in Q2.

The U.K. can expect growth to decline 0.4% in the first quarter
before rising 0.5% in the second, according to the OECD.

In the U.S., Padoan cited signs of “continuing improvement” in
household deleveraging — though he would not say deleveraging was
“over” — and gains in consumer and business confidence. Credit
conditions are also improving and reflect “both supply and demand
factors,” he said.

Unemployment in the U.S. is falling at a “good speed” and should
continue to fall, Padoan said, though a “question mark” hangs over the
labor market with regard to the degree that long-term unemployment has
“turned structural.”

The chief risk to U.S. growth continues to stem from the “fiscal
deadlock” in Washington, Padoan said, which “in our view represents a
source of uncertainty, which could undermine confidence.”

In Europe by contrast, Padoan said household deleveraging “is not
going on” and household debt continues to be high. Confidence, he added,
“is weak, both in consumer and business measures,” while “credit growth
is much weaker — this is a source for concern.”

The European Central Bank’s liquidity operations “have played an
important role in avoiding the worst,” the OECD said, while fiscal
consolidation is continuing. The organization repeated calls for an
increase in the Eurozone’s firewall “to restore confidence.”

Padoan noted that while sovereign debt yields in peripheral
Eurozone countries had been falling, they have seen an uptick again more
recently — a sign that “the European situation remains delicate,
sensitive, and there is no room for complacency.”

Rising unemployment is also “pointing to still persistent problems,
which have to do with structural impediments in Europe,” he said.

Padoan also cited oil prices as one of the risks to growth in
advanced countries, though he predicted a “limited impact” of “less than
0.5%” to OECD inflation and a 0.1% to 0.2% drop in output over the year.

Padoan noted world trade growth “has moderated” amid slowing
activity both in advanced and emerging economies.

The OECD said that uncertainty over its forecasts, though still
large, had fallen since November amid a reduction in tail risks, both in
the United States and the Eurozone.

–Chris Cermak is a Washington reporter for Need to Know News

** MNI Washington Bureau: 202-371-2121 **

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