Vol. 5 Num 990 Wed. March 14, 2007  

OECD sees weak US growth, but no recession

The OECD said on Tuesday that it expects growth in the United States to be subdued this year, but a recession in the world's biggest economy was unlikely despite concerns about the housing market.

And it urged the US, eurozone and Japanese central banks to avoid raising interest rates further.

"Growth (in the United States) is projected to remain sub-par over the near term, weighed down by the ongoing adjustment in the housing sector," OECD chief economist Jean-Philippe Cotis said.

Giving growth forecasts for this year, Cotis said that the US economy would expand by about 2.0 percent in the first half on an annual basis, while the eurozone economy would grow by 2.5 percent.

"The US economy has shifted into lower gear and the robustness of the recovery in Continental Europe has been confirmed," said Cotis in written remarks prepared for a quarterly review of the world economy.

In Asia, growth was "holding up well," but Japanese expansion remained "unbalanced" because lacklustre consumer spending was lagging vigourous business investment and corporate profits.

The slowdown in the United States was "something that resembles a soft landing," Cotis said later a press conference, before commenting on recent speculation about a recession this year.

"One cannot say that the most probable scenario is that of a recession," he said.

Concerns about a recession and a "hard landing" in the US were sparked last month when the highly influential former head of the Federal Reserve, Alan Greenspan, suggested pressures were building for a contraction later this year.

This assessment, coupled with sharp falls on the Shanghai stock exchange, led to a week of jittery trading on global stock markets with broad losses for equities across the world.

The fall in global stock markets "may reflect a measure of normalisation in the pricing of risk," Cotis said.

Cotis also suggested that the US, Japanese and European central banks should avoid raising interest rates further, saying inflation conditions did not justify monetary tightening.

He acknowledged that inflation was "still a bit too high for comfort" for the Federal Reserve in the United States.

But he added: "With growth set to remain subdued in the near term, there is no compelling case for the time being to resume tightening" interest rates.

Cotis also suggested the European Central Bank had no basis for further rate increases.