Oslo/Paris: The Organization for Economic Cooperation and Development (OECD) cut its forecast for expansion this year in its 30-member nations to “less than” 2%, the weakest since 2003.
This year “will be a difficult year of lower growth and some more unpleasant surprises,” OECD secretary general Angel Gurria said in Oslo. “We have revised downwards a number of our projections.”
Growth of less than 2% would mark a reversal of the OECD’s previous forecast that the economy would weather the fallout from the US slowdown and rebound in 2009. It would also highlight the mounting reliance of the world economy on emerging markets such as China and India.
Expansion is faltering in more developed economies as the US housing recession, bank write-offs and higher credit costs curb consumer spending and corporate investment. “Long gone are the days when the financial crisis was considered a US problem,” said Lena Komileva, chief economist at Tullet Prebon Plc. in London.
“The US will ultimately act as a drag on the rest of the world.”
In December, the Paris-based organization predicted a 2.3% growth rate in 2008 and 2.4% next year following last year’s 2.7%. It’s scheduled to release new forecasts on March 20.
Jean-Luc Schneider, deputy director of the OECD’s economics department, said the agency is “not yet completely convinced there will be a recession” in the US, though it will be “flirting” with contraction. That will affect other OECD economies, especially those in Europe, said Gurria.
While European growth won’t be as “uncomfortable” as in the US, it’ll “probably be worse than we know today,” Gurria said.
Gurria’s projection is weaker than that for overall global growth of 4.1% this year from the International Monetary Fund (IMF). That’s because IMF’s estimate covers 185 economies, including faster growing emerging nations.
Developing and emerging economies including China and India, which aren’t OECD members, will expand 6.9% this year, IMF predicted on 29 January. Such upswings are helping to protect the global economy from the 3% pace that economists deem a worldwide recession.
“Developing economies are still growing strongly,” said Gurria.