Johannesburg — A TOP think-tank sharply raised its forecasts for the global recovery yesterday, and gave a surprisingly upbeat assessment of SA's economy over the next two years.

The economy would expand 2,7% next year -- well above official forecasts for growth of 1,5% -- the Organisation for Economic Co-operation and Development (OECD) said.

It sees local output back at its potential growth rate of 4,5% by 2011, surpassing government estimates of 2,7%.

"Real growth will be negative in 2009, but should turn positive in the fourth quarter and accelerate in the first half of 2010, boosted by the Soccer World Cup," the OECD said.

Global growth would surge to 3,4% next year, after contracting 1,7% this year, the OECD said in its latest twice- yearly economic outlook.

But it warned that the recovery spreading across its 30 developed-country members was still "too timid" to halt a continuing rise in unemployment. The OECD jobless rate would rise to 9% next year from 8,2% this year.

"Overall, unprecedented policy efforts appear to have succeeded in limiting the severity of the downturn," the OECD's chief economist, Jorgen Elmeskov, said.

"It is now time to plan the exit strategy from crisis policies." But he added in a statement that "radical policy action will be required in the years to come" to restore sound economic balance, healthy growth and low unemployment across the world.

The expected global recovery would be driven by emerging-market giants like China, SA's biggest trade partner, which the OECD sees expanding by more than 10% next year. US growth is forecast to be 2,5% next year while the euro zone would expand by a meagre 0,9%, the Paris-based think- tank said.

SA's Treasury says its growth forecasts for next year are well below consensus estimates of 2% because it is not as optimistic about a global recovery from the recession.

The OECD also sees SA's large budget deficit shrinking dramatically over the next couple of years, as tax revenues rise. It predicts the shortfall will subside from 7,3% of gross domestic product (GDP) this year to 5,3% next year and 3,5% in 2011.

This compares with official forecasts of 7,6% of GDP this year, 6,2% next year and 5% in 2011.

But the OECD warned that SA remained "vulnerable" to a worsening of investor confidence, given its reliance on foreign buying of local shares and bonds to finance the shortfall on the current account -- its broadest measure of trade in goods and services.

It sees SA's current account gap shrinking to 4,9% of GDP this year, then expanding to 5,7% next year and 6% in 2011, which is in line with official estimates.

Although appetite for emerging- market assets in general had picked up and seemed likely to carry on, a renewed flight from risky assets was a possibility, the OECD said.

Investor sentiment could also be hit by domestic factors, like pressure on the government for more populist economic policies or renewed electricity supply constraints.

"A sudden worsening of sentiment would imply sharp currency depreciation, a retrenchment of imports and much weaker investment and growth. A continued surge in portfolio inflows, on the other hand, could bring a stronger pick-up in domestic demand and output, but ... risk worsening imbalances ."