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OECD Warns of Slowing Economic Recovery

The global recovery looks to be slowing more than expected as growth weakens in the world's rich economies, and monetary stimulus should be extended or stepped up if the slowdown proves more than momentary, the Organisation for Economic Co-operation and Development said on Thursday.

Economic Stimulus Package
Economic Stimulus Package

The OECD forecast growth across the G7 group of major economies to average an annualised 1.4 percent in the third quarter and 1.0 percent in the fourth, down from 3.2 and 2.5 percent in the first and second quarters respectively.

It forecast annualized U.S. growth rates of 2.0 and then 1.2 percent in the third and fourth quarters, after 1.6 percent in the second quarter and 3.7 percent in the first quarter.

"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," it said.

"It is not yet clear whether the loss of momentum in the recovery is temporary ...or whether it signals greater underlying weaknesses in private spending at a time when public support is being removed," the Paris-based organization said.

For Germany, France and Italy combined, the OECD forecast expansion to plunge to an annualised 0.4 and 0.6 percent respectively in the third and fourth quarters of the year, from 5.1 percent in the second quarter.

Germany's economy, which grew 2.2 percent quarter-on-quarter in the second three months of 2010, or an annualized rate of nearly 9 percent, would expand just 0.7 percent in annualized terms in the third quarter, it predicted.

For Japan, it forecast 0.6 and 0.7 percent annualised GDP rises in the third and fourth quarters respectively, mildly better than a second-quarter figure of 0.4 percent annualized.

For Britain, the OECD predicted 2.7 percent and 1.5 percent annualized growth in the third and fourth quarters after a second-quarter rise of 4.9 percent annualized versus the previous quarter.

The OECD's latest forecasts were limited to forecasting GDP developments in figures for the G7 countries, but it did add that growth remained robust in large emerging market economies.

On the downside, the OECD said there was a risk that weak house prices and high unemployment could restrain recovery in domestic consumption.

"If the ongoing slowdown is temporary, the appropriate policy response would be to postpone withdrawal of monetary stimulus for a few months while maintaining planned budget consolidation," OECD chief economist Pier Carlo Padoan said.

"On the other hand, if the slowdown reflects longer-lasting forces bearing down on activity, additional monetary stimulus may be needed in the form of quantitative easing and commitment to close-to-zero policy interest rates for a long period," he said.

"Where public finances permit, planned fiscal consolidation could be delayed," he said in a written statement.