Growth 'losing steam' in developed economies
Economic growth is losing steam in the industrialized world after a strong run and the US economy is slowing hard but not sliding into recession, the Organization for Economic Cooperation and Development said yesterday.
In a twice-yearly report, the OECD said India, Russia and other rising stars would continue to grow fast if not quite as furiously as before, and that the financial market troubles were the biggest, and simply unquantifiable, risk right now.
It commended recent interest rate cuts by the US central bank to help the world's largest economy weather a housing slump and crisis in subprime mortgage loans that has since snowballed into a more global credit market crunch, hitting mostly banks.
The European Central Bank and Bank of Japan should forget about raising interest rates for the next year or more and the Bank of England should cut rates, the OECD said.
High oil and food prices did not herald unmanageable levels of inflation and pressures on that front were expected to ease off with time even if the OECD was counting on oil remaining at an average $90 per barrel next year and still-high food costs.
The OECD forecast annual US economic growth of 2.0 percent next year before a return in 2009 to the 2.2 percent expected in 2007, but chief economist Jorgen Elmeskov said the immediate dip in growth would be sharper than those figures suggested.
"Several shocks have hit OECD economies recently: financial turmoil, cooling housing markets and higher prices of energy and other commodities," the report said.
"2007 is set to become the fourth year of above-trend growth in the OECD area but activity is now moderating."
The OECD forecasts for its 30 largely industrialized member countries but its report covered emerging market economies and said they would continue to provide support for overall economic growth despite the US woes.
Growth in the 13-country euro zone was set to slow to 1.9 percent next year from 2.6 this year and Japan to 1.6 percent from 1.9 in 2007, figures which pale beside the 6.5 percent in Russia in 2008.
Nonetheless, the OECD said the situation - credit crunch unknowns aside - remained "relatively benign" and that the end of an international housing boom in many countries in addition to the United States did not spell catastrophe.
In Europe, housing investment has turned down in Ireland and to a lesser extent in Spain while a downturn in British housing would carry the same risks of a consumer spending hit as are currently feared most in the United States, the report said.
"While the slowdown in housing markets which is now evident in most OECD countries will damp growth prospects it is expected to act as a severe brake in only a few."
Elmeskov, who is temporarily filling the shoes of recently departed Jean-Philippe Cotis, said the credit crunch was more of a danger than oil or food prices and housing but just not possible to predict.
"We've done the only thing we could do, assume this will dissolve gradually," he said in an interview.
The OECD said the direct impact to the economy of the hit to the financial services sector was not likely to be major but the risk was from higher-priced access to scarcer credit.
Nobody could say for now how things would unfold on that front, Elmeskow said.
Yet again, the hot spots of economic activity would the likes of India, now fast becoming a force to be reckoned with, the OECD said.
According to one measure, India was now the world's third-largest economy behind China and the first-place United States, the OECD said. India has risen from sixth place in 1990 based on that measure.
Agencies
(China Daily 12/07/2007 page16)
