By IB Times Staff Reporter: Subscribe to IB's RSS feed
September 9, 2010 11:48 AM EDT
The slowdown in the pace of recovery of the world economy is “somewhat more pronounced than previously anticipated”, although another downturn is unlikely, the Organization for Economic Cooperation and Development said.
Growth could slow in the G7 economies to an annual rate of about 1.5 per cent in the second half from the prior estimate of 1.75 percent, the Paris-based OECD said.
“The uncertainty is caused by a combination of both positive and negative factors. But it is unlikely that we are heading into another downturn,” said OECD
Chief Economist Pier Carlo Padoan.
Private consumption growth may be constrained by additional adjustments by households to the balance?sheet losses suffered during the recession and uncertainty about unemployment could put a damper on the expansion of private consumption.
A weak economy and uncertainty in sovereign debt markets might also affect adversely the financial system and private demand growth through deleterious feedback mechanisms.
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It is not yet clear whether the loss of momentum in the recovery is temporary or whether it signals greater underlying weaknesses in private spending.
Padoan said the current stance of both fiscal and monetary policy should remain on course. If the slowdown in the recovery becomes entrenched, and the risk of downturn increases, additional monetary stimulus in the form of quantitative easing and keeping interest rates close to zero for a longer period may be necessary.
Countries with more fiscal space could also delay plans for fiscal consolidation, he said.
Overall financial conditions have stabilized, and growth remains strong in the major emerging-market economies, the OECD said.
While consumer spending is set to remain weak, a combination of robust corporate profits and low business investment suggest that capital spending is unlikely to weaken further.
Country wise, the OECD forecast US GDP to rise by 2.0 percent in the third quarter but then moderate to 1.2 percent in the fourth quarter. Japan’s GDP is forecasted to grow at 0.6 percent in the third and 0.7 percent in the fourth.
The U.K. is forecast to grow at 2.7 percent in the third quarter before slowing to 1.5 percent in the fourth.
The combined GDP of the three largest countries in the euro zone is projected to grow at 0.4 percent in the third quarter and rising to 0.6 percent in the final three months of the year.
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