Belfast Telegraph

World's top economies are facing stagnation, says OECD

By Jamie Greirson

Influential think-tank OECD believes the world's biggest economies, including the UK, are close to grinding to a halt as increased uncertainty hampers growth.

The UK economy is facing near stagnation if the OECD's central forecast of 0.3% annualised GDP growth in the final quarter of 2011 turns out to be correct.

This would be a severe drop from 2.5% growth in 2010's third quarter.

The debate over fiscal policy in the US, the eurozone debt crisis and the dwindling number of options governments have to boost growth are driving both business and consumer confidence downward, the OECD said.

The OECD interim economic assessment is designed to check if projections made in its last economic forecast are on track.

In May, the body downgraded its estimate for UK GDP growth in 2011 to 1.4% and 1.5% for 2012.

It is forecasting that annualised growth in the UK will slow from 0.7% in the second quarter to 0.4% between July and September before hitting 0.3% in the final three months of the year.

TUC general secretary Brendan Barber blamed the poor forecast on the Government's deficit-busting austerity measures.

He said: "It looks like the best we can hope for is bumping along the bottom for years to come.

"Spending cuts are choking off recovery.

"The UK, US and Europe must embrace policies for investment and growth rather than hoping someone else will."

While OECD chief economist Pier Carlo Padoan encouraged governments to continue with fiscal tightening, he encouraged them to ease up when possible.

Mr Padoan admitted world economic growth was much slower than the think-tank thought it would be three months ago.

He said: "There's a clear drop in confidence in both business and households which reflects what they see as lack of policy response from governments."

The OECD recommended that central banks keep policy rates at present levels, and barring signs of recovery, consider lowering rates when there is scope.

World trade stagnated in the second quarter, according to the assessment, partly due to supply disruptions in the fallout of the earthquake and tsunami in Japan.

There is a risk of high unemployment becoming entrenched, the think-tank warned, and governments should roll out policies to create jobs.