PARIS: The outlook for economic growth in developed countries has got much worse in the last three months, the Organisation for Economic Cooperation and Development (OECD) said, and it urged central banks to keep rates low and be ready to pursue other forms of easing.
The latest estimates marked a sharp slowdown from the Paris-based organisation's last forecasts in May but used different methodology, so are hard to compare precisely.
The OECD forecast growth across the G7 group of major industrialised economies would average 1.6% on an annualised basis in the third quarter before slowing to just 0.2% in the final three months of the year.
“With respect to three months back, the growth scenario looks much worse; one would say that growth is stagnating,” said OECD chief economist Pier Carlo Padoan. “We are witnessing a growth slowdown across OECD countries.”
The slowdown would hit Germany particularly hard, according to OECD's estimates, forecasting that Europe's biggest economy would see annualised growth of 2.6% in the third quarter before contracting 1.4% in the fourth.
The US economy, meanwhile, would see annualised growth of 1.1% in the third quarter, slowing to 0.4% in the fourth.
The OECD, which is due to provide more complete forecasts later this year, warned that its latest outlook had an abnormally high margin of error due to exceptional uncertainty.
With the full impact of recent debt troubles in Europe and the United States still unknown, the OECD warned that risks were high that growth could prove even weaker although it ruled out a recession on the scale of the 20082009 financial crisis.
In light of the fast deteriorating outlook, the OECD said that central banks should keep interest rates on hold.
“If in the coming months signs emerge of the weakness enduring or the economy risks relapsing in recession, rates should be lowered where there is scope,” the OECD said.
With US and Japanese interest rates close to zero, it said central banks should consider, where needed, further interventions in securities markets and make strong commitments to keep interest rates low for an extended period.
The report came amid signs central banks are concerned about the weaker outlook for growth. - Reuters