Global minimum tax deal: What you need to know

PARIS - Some 130 nations have agreed to what would be the biggest international tax reform in a generation to clamp down on big companies that are gaming the rules.

The G20 nations are now expected to endorse a provisional deal reached under the auspices of the OECD, adding momentum to reach a final deal by October and convince hold-outs to join.

THE PILLARS

The proposed reform is comprised of two pillars to prevent companies from establishing bases in countries with low taxes to maximize profits earned elsewhere.

Pillar one would give countries a share of the taxes on profits earned there, though the tax would still be collected where the company has its fiscal base.

Multinationals operate in many countries -- oil giant BP is present in 85, for example -- but usually pay taxes on profits only in their tax home.

This provision would initially apply only to the top 100 or so companies, before expanding after seven years.

Pillar two is a global minimum corporate tax rate to stop competition between countries over who can offer companies the lowest rate -- what critics call a "race to the bottom".

The OECD deal set a minimum rate of 15 percent. 

While this is supposed to be an "effective tax rate" -- that is the companies actually pay that amount of tax -- the OECD deal envisages the possibility of countries retaining some investment incentives that would reduce payments.

NEXT STEPS

The next step towards a final deal is a meeting of G20 nations on July 9-10. 

While the OECD-brokered deal removes much of the drama, as all of the G20 nations were part of the 130 nations that backed it, the meeting can help maintain political momentum towards achieving a final deal.

There are many technical details to work out before the self-imposed October deadline (with a hoped-for 2023 start date), including the method used to calculate the amount of taxes to be redistributed.

Details of exemptions from the minimum tax rate also remain to be hammered out.

WHO ARE THE HOLD-OUTS?

Of the 139 nations that participated in the talks, nine didn't sign up to the deal: Barbados, Estonia, Ireland, Hungary, Kenya, Nigeria, Peru, Saint Vincent and the Grenadines, and Sri Lanka.

Except for Peru, which abstained because of a domestic political crisis, the other nations use low tax rates to attract multinationals.

Kenya and Nigeria believed the guarantees offered to developing countries were insufficient, according to a source involved in the negotiations.

Ireland said it supports the measure to redistribute taxes paid by multinationals among nations where they do business, but opposes the minimum 15 percent effective tax rate.

Hungary said the 15 percent rate is far too high and would weigh on economic activity.

The US signed up to the deal, but the administration of President Joe Biden faces headwinds as many Republicans oppose the deal and could block its passage in the Senate.

Agence France-Presse

OECD cuts 2020 global growth outlook on coronavirus outbreak

TOKYO - The Organization for Economic Cooperation and Development on Monday lowered its forecast for global economic growth this year, citing the impact of the new coronavirus epidemic on the manufacturing and travel sectors.

The world's gross domestic product is likely to expand a real 2.4 percent in 2020, down from an earlier forecast of 2.9 percent released in November and 2.9 percent growth in 2019, the OECD said in its latest economic report.

The latest estimate was based on the assumption that the epidemic would peak in China in the first quarter of 2020 and outbreaks in other countries would prove mild, according to the interim report for a biannual OECD economic assessment.

"The coronavirus (COVID-19) outbreak has already brought considerable human suffering and major economic disruption," the OECD said. "Output contractions in China are being felt around the world, reflecting the key and rising role China has in global supply chains, travel and commodity markets."

In the event of "a longer lasting and more intensive coronavirus outbreak, spreading widely throughout the Asia-Pacific region, Europe and North America," global growth this year could drop to 1.5 percent, the Paris-based organization said, adding that the prospects "remain highly uncertain."

Meanwhile, global GDP in 2021 is expected to expand 3.3 percent, up from a forecast in November of 3.0 percent, if the effects of the virus outbreak fade as assumed under the optimistic scenario, the report said.

By country, economic growth in China, the epicenter of the COVID-19 outbreak, is projected at 4.9 percent in 2020, lower than the previous forecast of 5.7 percent and the 6.1 percent expansion logged in 2019. The world's second-largest economy is projected to grow 6.4 percent in 2021, up from 5.5 percent forecast earlier.

The report said "the adverse impact on confidence, financial markets, the travel sector and disruption to supply chains" contributed to downward revisions for all Group of 20 major economies this year, particularly "Japan, Korea and Australia" that are strongly interconnected with China.

The organization cut its forecast for Japanese economic growth to 0.2 percent in 2020 from its previous estimate of 0.6 percent but left unchanged its 2021 outlook at 0.7 percent. Japan logged growth of 0.7 percent in 2019.

South Korea and Australia are expected to register economic growth of 2.0 percent and 1.8 percent this year, down 0.3 percentage points and 0.5 percentage points, respectively, from previous projections.

The U.S. economy, which grew 2.3 percent last year, is expected to see a limited impact from the virus, with growth in 2020 cut to 1.9 percent from the November forecast of 2.0 percent.

Growth in the eurozone is projected at 0.8 percent in 2020, down from an earlier estimate of 1.1 percent.

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G20 eyes taxing tech giants in bid for $100 billion boost

RIYADH - Leading world economies must show unity in dealing with aggressive "tax optimization" by global digital giants like Google, Amazon and Facebook, G20 officials said on Saturday.

The Organization for Economic Cooperation and Development (OECD) is developing global rules to make digital companies pay tax where they do business, rather than where they register subsidiaries. The OECD says this could boost national tax revenues by a total of $100 billion a year.

The call for unity appeared directed mainly at the United States, home to the biggest tech companies, in an attempt to head off any stalling on the rules until after the US presidential election in November.

"There is no time to wait for elections," German Finance Minister Olaf Scholz told a tax seminar on the sidelines of a meeting of G20 finance ministers and central bankers.

"This needs leadership in certain countries," Scholz said, looking directly at U.S. Treasury Secretary Steven Mnuchin, sitting next to him at the seminar.

The taxing of digital firms and the effect of the coronavirus outbreak on the global economy are among the hot topics being debated by G20 financial leaders, from the world's 20 largest economies, during their talks in Riyadh this weekend.

The OECD wants to set a minimum effective level at which such companies would be taxed and seeks agreement by the start of July, with an endorsement by the G20 by the end of the year.

"A coordinated answer is not the better way forward, but, given the alternatives, the only way forward," OECD head Angel Gurria told the seminar.

A draft G20 communique, seen by Reuters, showed financial leaders will endorse the OECD approach to the issue in their final statement on Sunday, backing the need pay tax where business is conducted and the need for a minimum rate.

They will also "reaffirm commitment to reach a consensus-based solution by end of 2020".

The OECD efforts were stalled late last year by last-minute changes demanded by Washington, which many G20 officials view as reluctant to deal with a potentially politically tricky matter before the presidential election.

Mnuchin said OECD countries were close to an agreement on the minimum tax level, which he said would also go a long way to resolving the issue of where tax is paid, although he warned that some aspects of the tax proposal could require approval by the U.S. Congress.

"I think we all want to get this done by the end of the year, and that's the objective," Mnuchin told the seminar.

Mnuchin sought to reassure G20 delegates that a US proposal to add a "safe harbor" regime to the tax reform effort - which has drawn criticism from France and other countries - would not let companies simply opt-out of paying taxes.

"It's not an optional tax," he said. "You pay the safe harbor as opposed to paying something else. People may pay a little bit more in a safe harbor knowing they have tax certainty."

US officials say their proposal would help address lawmakers' concerns and smooth passage of legislation that might be required for US implementation of new global tax rules. In essence, they argue, it would allow a multinational enterprise to elect to pay more foreign tax in exchange for better terms in the event of disputes over taxes, and easier administrative procedures.

But many questions remain.

MORE CLARITY NEEDED

French Finance Minister Bruno Le Maire told reporters it remained unclear exactly what the U.S. proposal would entail.

"We're still in the process of assessing what it really means," he said, adding, "It's not a non-starter for the French government. It's fair and useful to give all the attention to this new proposal."

European Union Economy Commissioner Paolo Gentiloni told Reuters there was still hard work ahead.

"It’s good that there is a commitment to find a solution, but ... it’s not there," he said, adding that he would meet with Mnuchin for bilateral talks later Saturday.

Scholz told reporters Germany remained skeptical. "I think we shouldn't start with letting companies choose which taxes they want to pay. This is leading to nowhere," he said.

Several European countries, including France, Spain, Austria, Italy, Britain and Hungary either already have a plan for a digital tax or are working on one, creating the risk of a highly fragmented global system.

"You cannot have in a global economy different national tax systems that conflict with each other," Mnuchin said.

Facebook Chief Executive Mark Zuckerberg said on Feb. 14 he would be ready to pay more tax in Europe and would welcome a global OECD solution that would make the levies uniform. 

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How tech taxes became world’s hottest economic debate

WASHINGTON — A growing movement by foreign governments to tax American tech giants that supply internet search, online shopping and social media to their citizens has quickly emerged as the largest global economic battle of 2020.

The fight pits traditional allies against each other, with European countries like France, Italy and Britain clashing with the US over their plans to impose new taxes on digital services provided by companies like Amazon and Google.

At the core of the debate are fundamental questions about where economic activity in the digital age is generated, where it should be taxed and who should collect that revenue. The potential for large tax dollars has spurred governments across the world to consider new digital taxes and has even inspired lawmakers in some American states, like Maryland and New York, to propose their own levies on digital trade.

This week, national leaders meeting in Davos, Switzerland, brokered a truce between the US and France, which had planned to move ahead with a digital services tax. Officials in both countries said they would pause what had been an escalating dispute in order to give international negotiators a chance to reach a global tax agreement that could halt a proliferation of digital taxes.

But the meetings, which took place at the World Economic Forum, have also brought new threats of taxation and tariff retaliation and underscored how fragile negotiations remain.

The stakes are high for governments and multinational corporations — even those outside the tech sector. The digital tax negotiations, which are being conducted through the Organization for Economic Cooperation and Development, have become entwined with efforts to reduce attempts by companies to avoid taxes by shifting profits overseas.

Late last year, negotiators at the OECD, including a delegation from the Trump administration, agreed to a first-step framework that would allow countries to tax certain digital-service providers even if they did not have physical presences inside their borders.

But Treasury Secretary Steven Mnuchin quickly surprised OECD officials with a letter requesting a change to the framework, one that would effectively allow some U.S. companies to opt out of those taxes. OECD officials pushed back, and negotiators are set to meet again next week in Paris.

The discussions, which are expected to last months, could end with an agreement on a global minimum tax that all multinational companies must pay on their profits, regardless of where the profits are booked. The negotiations could also set a worldwide standard for how much tax companies must remit to certain countries based on their digital activity.

Mnuchin expressed frustration Thursday in Davos that a digital sales tax had become such a focus of discussion at the World Economic Forum. Setting a minimum tax for companies around the world, to prevent them from hiding profits in tax havens, will make a much bigger difference, he said.

“From my perspective, that is by far the more important,” he said.

There is a chance the talks could devolve into a “Wild West” array of separate tax regimes on digital activity around the world.

“It’s a big old mess,” said Jennifer McCloskey, vice president for policy at the Information Technology Industry Council, a trade group that represents companies including Apple, Oracle and several other American tech leaders. “But,” she added, “that’s to be expected.”

Companies that operate across borders have long paid taxes where their profits are booked. Calculating that sounds simple enough, but it has grown increasingly complicated in recent decades. To reduce their tax bills, corporations have shifted profits — and in some cases their headquarters — on paper to low-tax countries like Bermuda and Ireland. OECD countries like the US have agreed to measures meant to discourage such shifting.

Such efforts did not resolve some countries’ complaints about Facebook, eBay and other companies that offer online services to their residents but have little or no physical presence within their borders. Those governments, along with leaders of the European Union, say large tech companies are avoiding paying their fair share of taxes.

“They’re looking for new ways to raise revenue,” said Nicole Kaeding, an economist and vice president of policy promotion at the National Taxpayers Union Foundation, which opposes the digital tax push by countries and states. “These are all wrapped up in the questions of how do we adjust a tax system that is a hundred years old in order to tax the digital economy?”

Kimberly Clausing, an economist at Reed College in Portland, Oregon, who specializes in international taxation and has pushed for additional measures to tax corporate profits around the world, said the digital tax effort exposed political and economic tensions in wealthy nations.

“It really lays bare this fiction that economic value is something we can assign to a location,” Clausing said. “As more and more of the value is intangible, it really creates this opportunity for profit-shifting.”

The proliferation of profitable digital services makes it “really the time” for the international community to revisit the rules of corporate taxation across borders, she said.

The feud between French and US officials has sped up the OECD process to rewrite those rules, which has a deadline for completion at the end of this year.

France announced plans last year to impose a 3 percent tax starting Jan. 1 on the revenues that companies earn from providing digital services to French users. The government estimated a windfall of 500 million euros (about $563 million). Similar taxes are under consideration in Britain, Italy, Canada and a host of other wealthy nations.

Those moves have drawn criticism, and tariff threats, from the Trump administration. President Donald Trump has insisted that only the US may tax American-based companies — even though American multinationals already pay taxes in other countries where they have factories or other physical operations. The president threatened to retaliate against France with US tariffs of up to 100 percent on French wine, cheese, handbags and other goods.

This week, Mnuchin also threatened tariffs against Italy and Britain if they impose similar taxes. British Chancellor Sajid Javid, who is also in Davos, said Britain would push ahead with the tax regardless.

Despite the acrimony, there are signs of progress. France’s finance minister, Bruno Le Maire, said Wednesday that the US and France had found a path forward in the OECD negotiations to set digital taxes.

The French agreed to suspend collections of their new digital tax, and the US agreed to hold off on tariffs, giving negotiators at the OECD time to strike their deal.

Le Maire made clear that the digital tax issue was far from resolved, and talks were expected to continue Thursday.

“We need to address fiscal evasion,” he said. “We have to address the fact that the biggest companies in the world are making huge profits in Europe and everywhere in the world without paying the due level of taxation because they do not have any physical presence — we have to address that question.”

Some observers are skeptical that the process can produce consensus — from some 130 countries — by year’s end.

“Some countries are going to have to give up taxing rights in order to allow other countries to have them. And the question is: Who?” said J. Clark Armitage, a former IRS official and the president of the tax firm Caplin & Drysdale in Washington. “It’s going to be hard to pass something that tracks what they propose.”

Negotiators face intense and competing pressures from large multinational companies. American tech firms are eager for a deal that would prevent multiple countries from imposing a wide variety of taxes on their activities.

“The worst case would be triple, quadruple taxation, because of how the individual taxes are not aligned,” said Jordan Haas, trade director for the Internet Association, another tech trade group in Washington.

Other companies, like consumer products giant Johnson & Johnson, have urged negotiators to go slow in considering the global minimum tax proposal that the OECD is discussing — and that French officials say must be included in any final agreement.

EU officials are already looking at reviving their own proposal to significantly revamp how the companies are taxed in the 28-nation bloc in the event that the OECD discussions fail. On Wednesday, an EU official said leaders were waiting to see whether Trump administration negotiators engaged more aggressively in the discussions and showed a willingness to work with Congress to carry out any consensus solution that emerged from the talks.

“We’re pleased” with the progress announced in Davos, the official said. “At the same time, we’re skeptical.”


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The big shortcoming: A grumpy 2020 for global growth

PARIS -- US political clouds coupled with wider climate and digital transformations point to a tricky 2020 for the world economy, although experts say a lurch back to crisis is improbable.

The Organisation for Economic Cooperation and Development said last month that activity had been hobbled by weaker trade and investment in the past two years, as US President Donald Trump pursued a trade war with China.

The OECD expects global growth to dip in the coming year to 2.9 percent, its lowest level since the world recession of 2009.

Trump appears to have struck a truce with China for now, under a "phase one" pact announced this month, but pre-existing tariffs remain in place and it will take time to demobilize their effects.

More broadly, the OECD contrasted proactive actions taken by central banks with the policy foot-dragging by governments in the face of climate change and the march of technology.

Industrialists and investors are having to correct their climate strategies even as Trump sits firm in his policy of denial. Oil giant Saudi Aramco recently had to trim back the volume of its gigantic share offering.

The International Monetary Fund was a little more optimistic in its latest World Economic Outlook, forecasting 2020 growth of 3.4 percent but warning nevertheless of a "synchronized slowdown and uncertain recovery".

At a time of populism and protests around the world, politics will remain an economic wild card next year.

Trump heads into the November presidential election under an impeachment cloud, and Britain's Brexit divorce from the European Union will likely be sealed next month, following Prime Minister Boris Johnson's election triumph.

The rise of technological giants sitting on mountains of data is meanwhile challenging the distribution of wealth between governments and big business, and has the potential to reshape the world of work as artificial intelligence exploits that data.

The online arena has emerged as another front for Trump's trade wars, after he threatened tariffs on France over its digital tax imposed on the likes of Amazon, Facebook and Google. Europe is threatening a collective response.

BETWEEN HEAVEN AND HELL

Ludovic Subran, chief economist of German insurance giant Allianz, sees a global "purgatory of growth" coming up.

Any systemic shock next year "will probably not be born in finance, but will be exogenous, for example a big regulatory shock on personal data, or in relation to the climate", he said.

If Trump survives the impeachment process and wins a second term, he could "double the bet against China" at the risk of military confrontation, Subran added.

Trump and his potential challengers on the Democratic left are united in their hostility to the free-trade and liberalization agendas that, they argue, hollowed out industrial America over the past decades. 

The mistrust is felt well beyond the United States.

"We're not worried about how to overcome a cyclical crisis, we know what to do," said Ingo Kuebler, the staff representative at Mahle, a German automotive supplier that has already been forced to downsize as car buyers turn away from diesel engines.

"The big issue is transformation, digitalization, electric mobility," he told AFP, fretting that an influx of cheap Chinese car batteries means "we are dreading the loss of many jobs".

THE BIG INCOME GAP

Since the financial crisis a decade ago, central bank policies have led to negative interest rates spreading in some countries, squeezing bank profitability and inflating private debt.

With growth faltering, the debate about wealth distribution will likely become still more acute. Anger at inequality runs like a thread through protest movements from rich Hong Kong to developing Chile.

In 2018, according to Oxfam, 26 billionaires had as much money as the poorest half of the world. 

"Even when people seem to enjoy basic material comfort, they may still experience the same level of misery and unhappiness as the poorest," French academic Esther Duflo said in October after she won the Nobel Prize in economics.

US investor Steve Eisman of "The Big Short" fame thinks that another global crisis is unlikely, but the best that can be hoped for is a slow strangulation of growth.

"What will happen next time, whenever it does happen, will be your normal garden variety of recession where the economy slows and goes negative and people lose money. That'll be painful enough," Eisman told AFP.

"A systemic crisis? Once was enough for our lifetimes," he said, reflecting back on the implosion of 2007-2008 that made hundreds of millions for his hedge fund when he correctly foretold the US subprime collapse. 

The prescient strategy of Eisman and other investment mavericks was recounted in a book by journalist Michael Lewis and subsequent Oscar-winning movie.

Agence France-Presse

China seen to post solid 1Q growth as debt risks loom

BEIJING - China is expected to report on Monday that its economy grew 6.8 percent in the first quarter, well above Beijing's full-year target, buoyed by surging government infrastructure spending and a gravity-defying property market that is showing signs of overheating.

A strong reading could help wobbly global financial markets but add to worries that China's government is still relying too heavily on old growth engines like stimulus and not doing enough to tackle risks from an explosive build-up in debt.

Though policymakers have pledged repeatedly to push reforms to head off financial risks and asset bubbles, the government is seeking to keep the world's second-largest economy on an even keel ahead of a major leadership transition later this year.

Beijing has set a slightly more modest growth target of around 6.5 percent for this year, theoretically offering more wiggle room for reforms after the economy grew 6.7 percent in 2016 - the weakest pace in 26 years.

Most economists polled by Reuters expect the economy expanded 6.8 percent in the first quarter from a year earlier, the same pace as in the fourth quarter of 2016. On a quarter-on-quarter basis, it likely grew 1.6 percent in January-March from the previous three-month period.

Economists at ANZ reckon growth may even clock in at 6.9 percent in the quarter, pointing to strong property and infrastructure investment.

"The announcement in early April of the construction of the Xiongan new economic zone, which requires massive infrastructure spending, suggests Chinese authorities are likely to rely more on investment to stabilize growth in the next few years," ANZ said in a note.

China's long-ailing industrial sector has been posting its best profits in years, thanks to higher prices for steel and other building materials, giving "smokestack" industries more cash flow to pay off debt and invest in more efficient plants.

China's export outlook also brightened considerably on Thursday as it reported forecast-beating trade growth and as US President Donald Trump softened his anti-China rhetoric in an abrupt policy shift, though the risk of US protectionist trade action is by no means off the table.

Still, many analysts expect economic growth to cool later this year as the impact of earlier stimulus measures starts to fade and as local authorities resort to ever-tougher measures in a bid to get soaring home prices under control.

ACCUMULATED PROPERTY CURBS

Most analysts don't see a price crash, but believe the accumulated weight of property curbs will eventually translate into weaker sales, construction and investment.

China imported the most iron ore on record in the first quarter, but iron ore and steel futures prices are nosediving on fears that its steel production is outweighing demand.

Beijing also is continuing to rely heavily on new credit to generate growth as productivity slows, despite worries about debt risks.

China's banks extended the third highest loans on record in the first quarter, though March lending was less than expected.

At the same time, China's central bank has shifted to a tightening bias, and is using more targeted measures to contain risks in the financial system, after years of ultra-loose settings.

MORE RATE INCREASES?

The People's Bank of China (PBOC) has raised short-term interest rates several times already this year, while boosting its regulatory oversight.

Analysts predict further modest rate increases this year, but do not expect a full-blown policy rate hike as authorities fear tapping the brakes too hard would stunt economic growth.

The Organisation for Economic Co-operation and Development (OECD) says China's total private and public debt has exceeded 250 percent of GDP, up from 150 percent before the global financial crisis.

"While the authorities obviously recognize the risks, credit has continued to expand at a pace that looks unsustainable," analysts at Barclays said.

"Although this does not necessarily equate to the risk of an imminent crisis, the apparent plan to 'kick the can down the road', at least past the Party Congress, means that problems left to fester may become more difficult to resolve."

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Richest 62 people own same as half world's population - Oxfam

LONDON - The wealthiest 62 people now own as much as half the world's population, some 3.5 billion people, as the super-rich have grown richer and the poor poorer, an international charity said on Monday.

The wealth of the richest 62 people has risen by 44 percent since 2010, while the wealth of the poorest 3.5 billion fell 41 percent, Oxfam said in a report released ahead of the World Economic Forum's annual meeting in Davos, Switzerland.

Almost half the super-rich individuals are from the United States, 17 from Europe, and the rest from countries including China, Brazil, Mexico, Japan and Saudi Arabia.

"World leaders' concern about the escalating inequality crisis has so far not translated into concrete action - the world has become a much more unequal place and the trend is accelerating," Oxfam International's executive director, Winnie Byanima, said in a statement accompanying the report.

"We cannot continue to allow hundreds of millions of people to go hungry while resources that could be used to help them are sucked up by those at the top," Byanima added.

About $7.6 trillion of individuals' wealth sits in offshore tax havens, and if tax were paid on the income that this wealth generates, an extra $190 billion would be available to governments every year, Gabriel Zucman, assistant professor at University of California, Berkeley, has estimated.

As much as 30 percent of all African financial wealth is held offshore, costing about $14 billion in lost tax revenues every year, Oxfam said, referring to Zucman's work.

This is enough money to pay for healthcare that could save 4 million children's lives a year, and employ enough teachers to get every African child into school, Oxfam said in its report.

"Multinational companies and wealthy elites are playing by different rules to everyone else, refusing to pay the taxes that society needs to function. The fact that 188 of 201 leading companies have a presence in at least one tax haven shows it is time to act," Byanima said.

Ensuring governments collect the taxes they are owed by companies and rich individuals will be vital if world leaders are to meet their goal to eliminate extreme poverty by 2030, one of 17 Sustainable Development Goals set in September, Oxfam said.

EXTREME POVERTY FALLING

The number of people living in extreme poverty has fallen by 650 million since 1981, even though the global population grew by 2 billion in that time, according to the Organisation for Economic Co-operation and Development (OECD).

Much of this change has been because of the rise of China, which alone accounted for half a billion people moving out of extreme poverty.

Most of the world's poorest no longer live in the poorest countries, but in middle-income countries like India, the OECD said in a recent report.

The inequalities are partly to do with differences in income, especially between urban and rural areas, but also differences in access to healthcare, education and jobs, the OECD said.

"The figures suggest that the biggest causes of poverty are ... political, economic and social marginalization of particular groups in countries that are otherwise doing quite well," development economist Owen Barder is quoted as saying in the OECD report.

Barder is director for Europe at the Center for Global Development.

Although taxes and transfers help reduce income inequality in developed countries, these systems are less robust in many developing countries, according to the OECD.

An exception is Brazil, which makes payments to more than 13.3 million poor families on condition they enrol children in school and take part in health programs.

"That has helped to reduce rates of both child poverty as well as inequality," the OECD report said.

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OECD sees Europe joining US recovery

Slowing emerging economies seen weighing on global growth

PARIS - Led by firm U.S. growth, the outlook is gradually improving for advanced economies while even crisis-weary Europe is at last joining the recovery, the OECD said on Tuesday.

Nonetheless, a slowdown in many emerging economies meant that global growth would remain sluggish, the Organisation for Economic Cooperation and Development said.

"The bottom line is that advanced economies are growing more and emerging economies are growing less," OECD chief economist Pier Carlo Padoan told Reuters.

Among major economies, the United States would lead the recovery with growth this year of 1.7 percent, the think tank said, trimming its estimate from a May forecast of 1.9 percent.

Boosted by massive monetary stimulus from the central bank, Japan was seen on course for growth this year of 1.6 percent, unchanged from the OECD's May forecast.

Meanwhile Europe, which has been a drag on growth in recent years as it struggled with its debt crisis, at last offered good news with recoveries underway in France and Germany prompting the OECD to raise its forecasts for them.

France was seen on course for growth of 0.3 percent this year, up from a contraction of 0.3 percent in the OECD's May forecast, while Germany, Europe's biggest economy, was set to grow 0.7 percent, up from 0.4 percent previously.

Outside the euro zone, Britain was seen growing 1.5 percent, raised sharply from a forecast of 0.8 percent in May.

Though major developed economies are picking up, a slowdown in many emerging countries was likely to weigh on broader global growth, the OECD said.

China was the exception among emerging economies, with its growth forecast to accelerate over the course of the year and achieve a rate of 7.4 percent this year.

With the U.S. economy on track to keep growing at steady clip, the OECD said it was appropriate for the Federal Reserve to start slowing bond purchases, the main measure in the central bank's exceptionally monetary easing policies.

The Fed signalled in May that it was contemplating slowing the pace of the purchases, which have been the flagship measure for reviving the world's biggest economy since the 2008-2009 financial crisis.

In the euro area, the OECD said the ECB should keep the possibility of an interest rate cut on the table in case the recovery there peters out.

With Italy's economy forecast to contract 1.8 percent this year, Padoan said that the debt-laden economies of southern Europe still needed loose monetary policies there.

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