The Organization of Economic Cooperation and Development (OECD) on Wednesday slashed its growth forecast for the world’s leading industrialized powers, warning that several lackluster quarters loomed ahead despite signs of the contrary.
Noting that financial market upheavals may have “reached their peak,” the Organization of Economic Cooperation and Development, in its latest survey, said that its 30 member economies were confronting “three adverse shocks,” namely continued financial market uncertainty, a housing downturn and soaring food and energy prices.
The 30-member strong organization predicts that growth momentum in the industrialized countries would slow down to 1.8% this year, compared to 2.7% in 2007, and 1.7% in 2009. The latest figures are in sharp contrast to what the OECD had said in its last report in December, when it foresaw an economic growth of 2.3% this year and 2.4% in 2009.
While oil demand has slackened in the industrialized world in the face of subdued economic activity, demand from high-growth emerging market nations, where fuel consumption is often subsidized, has been pushing up crude prices, said the OECD. “Indications are that the overall growth of oil supply will also be subdued in the long run,” said the report, adding that “there may also be a speculative element to recent oil price rises.”
As food and energy account for a significant portion of consumer spending, “the rising prices have put upward pressure on consumer price inflation,” said the OECD, noting that “inflation, driven by climbing commodity prices, continued to loom large over member states.” “Several quarters of weak growth lie ahead for most of the OECD economies,” Jurgen Elmeskov, acting head of the OECD economics unit, wrote in an editorial introducing the report. “The odds have improved greatly, the financial market dislocation has passed its peak, but this is far from a foregone conclusion,” said the economist, adding: “And even if true, the effects on growth are likely to linger at least for the foreseeable future.”
In the report, the organization indicates that the United States, the world’s largest economy, would remain sluggish throughout this year, and even possibly “contracting in the second quarter before staging a gradual recovery in 2009.” The eurozone has so far been able to mount some resistance to a general global slowdown, said the OECD, attributing the current situation to a “surprising strength” in Germany’s economy.
The study, which covered the world’s major economies, said that the US Federal Reserve should maintain its readiness to lower interest rates until an economic recovery finally sets in, while the European Central Bank “should continue to keep its rates on hold.” Meanwhile, the report indicates that the health of the global banking sector has strengthened over the recent past, with effects of a crisis largely orchestrated by US sub-prime housing market crisis having come to pass. (Xinhua)