Global economy shrinks

The US slowdown has sparked global recession fears

The world's biggest economies will shrink in the second half of this year for the first time in two decades, one of the world's most important economic monitors has said.

Growth forecasts for OECD area

H1 2001: 1.1%

H2 2001: -0.3%

H1 2002: 0.7%

H2 2002: 2.9%

H1 2003: 3.2%

H2 2003: 3.3%

H1 = January to June H2 = July to December

In its latest review of the world economy, the Organisation for Economic Cooperation and Development (OECD) said growth among its members would be no more than 1% this year and next.

The after-effects of the 11 September attacks, especially on the US economy, were being blamed for the slowdown.

But the OECD forecast a strong rebound in 2003, when overall growth should bounce back to 3% - with an even stronger performance in the US.

And it said that Europe, and particularly the UK, should be able to avoid the worst effects of the slowdown entirely.

The OECD, dubbed by some observers as the "rich nations club", represents the world's 30 most developed economies, selected mainly on the basis of their commitment to free markets and democracy.

US ups and downs

The OECD forecast US growth of 1.1% in 2001, with growth of 1.2% in the first half of the year offset by a 0.6% retreat in the second half.

The report urged the US central bank, the Federal Reserve, to prepare to cuts rates below the current 2.0% level if the country's economy weakened further.

More cheering for the US was the prediction that the rebound, when it comes, should prove strong.

The US economy could be growing at a healthy annual 3.8% by as early the second half of next year, Tuesday's report said.

Many other experts have predicted that the post-attack slump, although severe, should be followed by a rapid and significant bounce in output.

Japan weak, Europe strong

As for Japan, which has been mired in recession for far longer, the OECD was gloomier still.

It forecast a 2.3% annual slump in output in the second half, and no strong chances of recovery before 2004.

Europe, by contrast, is likely to escape the worst.

Although the OECD forecast EU growth to slow to 0.7% in the second half of this year, it also said that growth should return to its trend level of about 3% by the end of next year.

And the OECD said that the UK should avoid all but the mildest slowdown.

Although growth may dip to 2% next year, solid growth should return before the end of 2002.

Uncertainty remains

The organisation warned, however, that the global rebound was not a foregone conclusion.

"For the recovery to occur, it is crucial that the sentiment of insecurity prevailing since September dissipates," the report said.

"Increased risk aversion is encouraging households and firms to become more cautious and postpone spending decisions.

"A variety of adverse events could occur, including a further sharp fall in consumer and business confidence in OECD countries, lower imports from non-OECD economies, higher oil prices than their currently favourable level and unpredictable exchange-rate fluctuations."

Counting the cost

Tuesday's report is the latest in a series of surveys attempting to assess the cost of the September attacks.

The OECD's figures omit results from many of the world's big developing countries, including China and Russia, which may have avoided the worst effects of the US slowdown.

By definition, OECD member countries tend to be more open and trade-oriented, leaving them more exposed to global booms and slumps.