Global economic recovery is slowing faster than expected and extra stimulus from governments may be needed, the OECD(Organization for Economic Cooperation and Development) and World Economic Forum warned on Thursday.
Recent data suggest the economy of the Group of Seven nations could grow at an annualized rate of about 1.5 percent in the second half, below the 1.7 percent previously envisaged and the 3 percent rate of the first six months of the year, the Paris-based organization said today. “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,” the OECD said.
The G7 industrialised nations are now expected to grow 1.5% on an annualised basis in the second half of this year, down from the 1.75% forecast in May. “The uncertainty is caused by a combination of both positive and negative factors,” said OECD chief economist Pier Carlo Padoan. “But it is unlikely that we are heading into another downturn.”
If the slowdown is temporary, it would be appropriate to delay the withdrawal of monetary stimulus “for a few months” while pressing ahead with fiscal deficit-reduction measures, Padoan said in a statement accompanying the OECD’s interim economic outlook in Paris.
The OECD’s economic update forecasts gross domestic product in the Group of Seven industrialized countries to grow at an annualized 1.5% pace in the second half of 2010, compared to a previous estimate of around 1.75%. The OECD’s May report had warned that “monetary policy must be normalized,” but said central banks should take into consideration the impact of fiscal consolidation so as not to put undue pressure on interest rates.
At the same time, low levels of private investment mean it’s unlikely to weaken much further, emerging markets are showing robust growth and overall financial conditions have stabilized, OECD said. But the OECD also noted that the global economy could take advantage of several strengths, in particular robust corporate profits, inventory levels that should not warrant “a renewed rundown of stocks” and stablised overall financial conditions in most industrialised countries.
Overall financial conditions have stabilised, the report noted. 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. Because inventories are now close to desired levels, a renewed depletion of stocks is also unlikely.