OECD warns of lower growth in US, eurozone

Analysis

The Organization for Economic Cooperation and Development on Wednesday lowered its growth forecasts for the world’s most developed economies, citing the US housing market crisis and recent turbulence in global bourses.

In a latest report titled “What is the economic outlook for OECD countries? An interim assessment,” the OECD updated its previous forecasts from May, lowering forecasts for the G-7 as a whole, with the US and eurozone powerhouses France and Germany predicted to be much weaker than previously expected.

Jean-Philippe Cotis, chief economist of the Paris-based economics body, said in the report that “the May 2007 OECD growth projections for the year as a whole are not revised that much” and the growth prospects are “clearly less buoyant and more uncertain, “ while “downside risks have become more ominous, in a context where overall financial market conditions are likely to remain durably tighter”.

In the report, the combined G-7 economies were forecasted to grow by 2.2% this year, compared with the 2.3%, while the US economy will expand by 1.9% instead of 2.1%. The euro area as a whole is marked down to 2.6% instead of 2.7%. The French economy is expected to increase by 1.8% instead of 2.2%, while Germany is foreseen to grow by 2.6% instead of 2.9%. The forecast for the Japanese economy was kept at 2.4%, while Britain and Canada were upgraded to 3.1% and 2.7% from the previous 2.7% and 2.5% respectively.

In the report, Cotis also suggested that the European Central Bank and the US Federal Reserve focus their monetary policy and interest rate setting on prospects for inflation and economic activity. “There may be a case for some easing in the US federal funds target rate, following the August cut in the discount rate,” said the report. It also advised Japan to wait for market volatility to quiet down and for a durable end to deflation before hiking the policy rate further.

The report also noted the problems lying behind the global credit markets revealed by the US subprime mortgage housing market. It called for improved regulation, encompassing supervision and transparency in the credit markets, and urged an active fight against predatory lending through better disclosure and education.

The 30-member Organization for Economic Cooperation and Development was founded in 1961 to coordinate the economic and social policies of its member states. Headquartered in Paris, it is one of the world’s most influential forums on economy, education and environment. (peopledaily.com.cn)

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