Global economic recovery slower than projected

New York : The global economic recovery is proving slower than projected and policy makers may need to extend or bolster stimulus programs to support it, the Organisation for Economic Cooperation and Development (OECD) said.

Recent data suggest the economy of the Group of Seven nations could grow at an annualised rate of about 1.5 per cent in the second half, below the 1.7 per cent previously envisaged and the three per cent rate of the first six months of the year, the Paris-based organisation 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 expected," Pier Carlo Padoan, the OECD's chief economist, said in a report.

The outlook comes as investors signal worries that the global rebound from last year's recession is fading as stimulus ebbs and governments look to cut back record budget deficits. The MSCI World Index of stocks is down about nine per cent since mid-April.

If the slowdown is temporary, then policy makers should postpone the withdrawal of monetary support for a few months, while maintaining plans to cut fiscal deficits to reassure investors, the OECD said. If growth is threatened for longer, then central banks may need to buy assets and commit to near-zero interest rates for a long period and governments may need to delay budget cuts, it said.

The OECD projected growth in the G-7 economies of one per cent in the final three months of the year on an annualised quarter- on-quarter basis. That would be the slowest since the second quarter of last year, and below the 1.4 per cent projected for the current quarter.

The US's expansion will slow to 1.2 per cent in the next quarter from two per cent, the report said.

Japan will grow 0.6 per cent and 0.7 per cent in the last two quarters of the year, while German growth will accelerate to 1.1 per cent from 0.7 per cent, the report said.

Italy will contract 0.3 per cent this quarter before expanding 0.1 per cent in the next three months, and French growth will fade to 0.3 per cent from 0.7 per cent, the OECD said.

The UK will expand 2.7 per cent in the third quarter before slowing to 1.5 per cent in the fourth quarter and Canada will grow 2.2 per cent and 2.3 per cent over the two periods, it said.

Private consumption may be constrained as consumers tackle their debts and worry about unemployment, the report said.

Weak growth and doubts about the ability of governments to pay their debts may hurt the financial system, it said. The recoveries in world trade and housing markets are also losing momentum, it added.

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 stabilised, it said.

Underlying inflation continues to moderate in major OECD economies amid excess capacity, while price pressures have surfaced in large emerging-market economies, it said.