OECD says recovery slowing, urges policy caution

OECD says recovery slowing, urges policy caution

Paris: Global recovery looks to be slowing more thanexpected as growth weakens in rich economies, and stimulus should be extended or stepped up if the slowdown endures, the OECD said on Thursday.

The Organisation for Economic Co-operation and Development forecast growth across the G7 group of major economies to average an annualised 1.4% in the third quarter and 1.0% in the fourth, down from 3.2 and 2.5% in the first and second quarters respectively.

“We’re seeing a slowdown in the recovery which is more or less generalised," OECD chief economist Pier Carlo Padoan told Reuters Insider TV, although he saw no evidence of a relapse into recession in any major economy at the moment.

“We’re not seeing a double-dip now," he said.

The OECD forecast annualised US growth rates of 2.0 and 1.2% in the third and fourth quarters, after 1.6% in the second quarter and3.7% in the first.

“Recent high-frequency indicators point to a slowdown in the pace of recovery of the world economy that is somewhat more pronounced than previously anticipated," it said.

“It is not yet clear whether the loss of momentum in the recovery is temporary ... or whether it signals greater underlying weaknesses inprivate spending at a time when public support is being removed," the Paris-based organisation said.

For Germany, France and Italy combined, the OECD forecast expansion to plunge to an annualised 0.4 and 0.6% respectively in the third and fourth quarters of the year, from 5.1% in the second quarter.

Germany’s economy, which grew 2.2% quarter-on-quarter in the second three months of 2010 -- close to a startling 9% annualised rate -- would expand just 0.7% in annualised terms in the third quarter, it predicted.

Others were more optimistic about Europe’s largest economy. Germany’s Institute for World Economy (IfW) think tank raised its 2010 growth forecast on Thursday, saying it now expected the German economy to grow by 3.4% this year, up from a previous forecast for 2.1% made in June..

For Japan, the OECD forecast 0.6 and 0.7% annualised GDP rises in the third and fourth quarters respectively, mildly better than a second-quarter figure of 0.4% annualised.

For Britain, the OECD predicted 2.7 and 1.5% annualised growth in Q3 and Q4 after a second-quarter rise of 4.9% annualised versus the previous quarter.

The OECD’s latest forecasts were limited to forecasting for the G-7 countries, but it did say growth remained robust in large emerging market economies. On the downside, it said there was a risk weak house prices and high unemployment could restrain domestic consumption.

“If the ongoing slowdown is temporary, the appropriate policy response would be to postpone withdrawal of monetary stimulus for a few months while maintaining planned budget consolidation," Padoan said.

“On the other hand, if the slowdown reflects longer-lasting forces bearing down on activity, additional monetary stimulus may be needed in the form of quantitative easing and commitment to close-to-zero policy interest rates for a long period," he said.

Asked if the European Central Bank was conducting the appropriate policy,Padoan told Insider the strategy of preparing for a slow withdrawal of monetary stimulus while seeking fiscal consolidation was right as long as the slowdown was temporary.

He also said countries which had room for manoeuvre could afford to ease the pace of fiscal cutbacks. “Where there’s space, the fiscal consolidation could be slowed down a bit," he said.

“Now that world trade is somewhat decelerating, Germany is being hit in the sense that it’s having slower growth than previously," Padoan said when asked if Germany was particularly vulnerable because of its reliance on exports.