The Organisation for Economic Cooperation and Development raised its growth forecast for the eurozone economy yesterday to 1.2 per cent this year but urged it to tackle financial weaknesses which could slow recovery and threaten monetary union.

The grouping of 30 developed nations forecast gross domestic product across the 16-nation bloc would rise by 1.2 per cent in 2010 - raising its last estimate of 0.9 per cent growth made in November.

It forecast growth of 1.8 per cent in 2011.

"A gradual (eurozone) recovery is under way driven by economic policy stimulus, a rebound in world trade and improving financial conditions, although there has recently been significant financial market volatility," it said.

"Difficulties in restoring competitiveness and sound public finances in some peripheral countries may complicate recovery," it added, however, in its twice-yearly world economic report.

Recovery in Germany, although fundamentally robust, would pick up from the second quarter as exports benefited from a rebound in world trade.

However, the outcome for the whole of 2010 would be 1.9 per cent, from a contraction of 4.9 per cent last year, and then rising to 2.1 per cent in 2011.

"Notwithstanding the temporary weakness, the underlying growth momentum is intact and suggests solid growth going forward," the OECD said.

Growth in France, the second main economy in the eurozone after Germany, would rise somewhat to about two per cent this year and next, led by business investment, exports and end to destocking by companies. Growth last year was 0.8 per cent.

But France should unwind measures used to stimulate the economy during the global economic crisis, the report said.