OECD raises India 2010 GDP growth forecast

PARIS (Reuters) - Following is a summary of what the Paris-based Organisation for Economic Co-operation and Development had to say about non-members Brazil, India, China and Russia in its semi-annual Economic Outlook released on Thursday.

CHINA

In its previous forecast on June 24, the OECD had projected GDP growth of 7.7 percent this year and 9.3 percent in 2010.
Upgrading its outlook, it said domestic demand was set to remain strong thanks to highly stimulative economic policies and buoyant consumption spurred by improving employment prospects.

Fiscal stimulus has not endangered the sustainability of China's public finances. Indeed, the OECD expects net government debt to be "very low" when stimulus is withdrawn in 2011.

Whereas the government can afford to keep spending at higher levels, credit growth will need to be reined in to avert a new crop of bad loans, the report said.

INDIA

The OECD had been forecasting GDP growth for India of 5.9 percent in 2009 and 7.2 percent in 2010.

With inflation re-emerging, due to various supply factors, policymakers will need to ensure a timely withdrawal of stimulus.

"Given the magnitude of the easing and the speed at which inflation has bounced back, monetary policy will need to be tightened fairly soon," the report said.

Reining in the budget deficit will be tough because of its size and the permanent nature of recent increases in spending.

Higher financing costs, exacerbated by heavy government borrowing, will be a drag on investment and keep economic growth just below pre-crisis rates.

RUSSIA

The OECD had previously forecast a contraction of 6.8 percent for Russia in 2009 and growth of 3.7 percent in 2010.

"Although recovery is in prospect, the large output gap and subdued inflation suggest that policy stimulus should not be removed too hastily," the OECD said.

By contrast, discriminatory trade measures to protect domestic industries during the crisis are counter-productive and should be unwound as quickly as possible.

"Also, the high concentration of assets and deposits in a few state-owned banks was a natural consequence of the crisis, but is not healthy for the long-run development of the banking system."

The OECD said consumer and investor confidence is still fragile and closely tied to the oil price, which holds the key to the direction of capital flows, credit growth and asset prices.

BRAZIL

In its previous forecasts, the OECD projected that Brazil's GDP would shrink 0.8 percent this year and grow 4.0 percent in 2010.

"A judiciously planned withdrawal of policy stimulus would be advisable from early 2010, if the recovery is well in hand, as expected," the report said.
The inflation outlook is benign, but a gradual tightening of monetary policy might be in order from mid-2010 to prevent price pressures arising from rapidly diminishing slack in the economy.

Brazil's debt dynamics are sustainable, even though the ratio of public debt to GDP has been trending higher, the OECD added.