Developed countries face a sharp year-end slowdown led by a contraction in Germany, the Organisation for Economic Co-operation and Development (OECD) said yesterday, urging central banks to keep rates low or pursue other forms of monetary easing if the downturn becomes entrenched.
The estimates marked a sharp downgrade from the Paris-based organization’s last forecasts in May, but used different methodology so were hard to compare precisely.
OECD Secretary-General Angel Gurria said last month the agency was preparing to cut its outlook for Europe and Japan.
The OECD forecast growth across the G7 economies would average 1.6 percent on an annualized basis in the third quarter before slowing to just 0.2 percent in the final three months of the year.
The slowdown would hit Germany particularly hard, according to the OECD’s estimates, -forecasting that its economy would see annualized growth of 2.6 percent in the third quarter before contracting 1.4 percent in the final quarter.
The US economy was forecast to see annualized growth of 1.1 percent in the third quarter before slowing to 0.4 percent in the fourth quarter.
The OECD, which is due to provide more complete forecasts later this year, warned that its latest forecasts had an abnormally high margin of error due to exceptional uncertainty.
With the full impact of recent debt troubles in Europe and the US still unknown, the OECD warned that risks were high that growth could prove even weaker than foreseen in its latest forecasts, although it ruled out a recession on the scale of the 2008-2009 financial crisis.
In light of the quickly 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, the OECD said that 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 that central banks are concerned about the weaker outlook for growth.
The European Central Bank, which was meeting yesterday, was expected to signal a change in policy direction, halting an interest rate rise cycle as the eurozone debt crisis weighs on the economy.
The Bank of England was also meeting yesterday, with investors watching for signs of more stimulus to help the ailing economy. On Wednesday, the Swiss National Bank set a target to cap the franc’s rise against the euro to protect the economy.
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