OECD says another global recession is unlikely as it trims growth forecasts

Global recession unlikely, OECD says

LONDON — The global economic recovery could be slower than expected but another recession remains unlikely — especially if governments don’t overdo their spending cuts, a leading international economic body said Thursday.

In its latest economic assessment, the Paris-based Organization for Economic Cooperation and Development urged policymakers around the world to be careful not to choke off the economic recovery by cutting back on spending too much and too soon.

“If the slowdown reflects longer-lasting forces bearing down on activity, additional monetary stimulus might be warranted,” said the OECD’s chief economist Pier Carlo Padoan. “Where public finances permit, planned fiscal consolidation could be delayed.”

The OECD’s recommendation on austerity measures represents a shift from its view just a few months ago when it urged governments around the world to get a grip on ballooning budget deficits.

Since its last recommendation in May, concerns about the global economic recovery have mounted even though the economic situation in the 16-country eurozone appears to have stabilized after a €110 billion bailout of Greece and agreement on a $1 trillion financial backstop for troubled governments.

Overall, the OECD now expects the Group of Seven rich industrialized countries to grow by around 1.5 percent on an annualized basis in the second half of 2010. The G-7 is: the U.S., Britain, Canada, France, Germany, Italy and Japan.

Though that’s down from its previous prediction of 1.75 percent issued in May, the OECD still reckons that the loss of momentum in the recovery is likely to prove “temporary.”

“It is unlikely that we are heading into another downturn,” said Padoan.

The OECD said robust corporate profits and already low business investment indicate that capital spending is unlikely to weaken further, thereby helping to support economic activity at a time when consumer spending is set to remain weak.

And because inventories are now close to desired levels, a renewed depletion of stocks is also unlikely, it added.

Based on the most recent data, the OECD said U.S. economic growth is expected to rise by an annualized 2.0 percent in the third quarter but then moderate to 1.2 percent in the fourth quarter.

In the second quarter, U.S. economic growth more than halved to a rate of 1.6 percent, triggering concerns that the world’s largest economy was heading for a so-called double-dip recession.

In Japan, the OECD sees growth rising to 0.7 percent in the fourth quarter from 0.6 percent in the third. Though fairly muted, that’s still an improvement on the 0.4 percent growth posted in the second quarter of the year.

Meanwhile, the OECD said it expects the combined economy of the three largest countries in the euro area — Germany, France and Italy — to grow at a rate of 0.4 percent in the third quarter and 0.6 percent in the fourth quarter. Though growing, those rates are way lower than the 5.1 percent growth recorded in the second quarter when Germany, in particular, saw its exports bounce massively as global trade picked up.