The Organisation for Economic Co-operation and Development has warned that the world economic recovery is slowing down more sharply than expected and that extra measures from governments to boost economies may be needed.
Growth in the Group of Seven leading industrialised economies could slow to an annual rate of 1.5% in the second half of the year, the OECD said in an interim assessment.
‘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.
But the report also said that such an evaluation was subject to ‘great uncertainty’ and that it remained unclear if the slowdown reflected temporary factors or whether it signalled deeper constraints.
It said that if the trend were deemed to be temporary, governments should withdraw their monetary support ‘for a few months’ while continuing to curb public spending.
But if the latest sluggishness proved to be longer lasting, governments could boost stimulus measures, for example by continuing central bank purchases of corporate debt and maintaining interest rates close to zero.
The report added that if public finances permitted, planned budget cuts could be delayed.
The OECD said in the months ahead consumer spending, the principal motor in many advanced economies, could be constrained by unemployment and falling housing prices.
In addition, ‘a weak economy and uncertainty in sovereign debt markets might also affect adversely the financial system and private demand growth.’
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 stabilised overall financial conditions in most industrialised countries.
