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Thursday, 3 May, 2001, 10:15 GMT 11:15 UK
Global growth forecast cut by OECD

The Organisation for Economic Cooperation and Development (OECD), made up of the world's major industrial countries, has cut its growth forecast sharply as a result of the US slowdown.

The OECD says that economic growth in 30 countries who are its members will fall this year to 2.0%, compared to its previous forecast of 3.3% made last November.

A major risk to this picture is that more fundamental imbalances are present ... that could be seriously aggravated by what might otherwise be a mild slowdown

OECD Economic Outlook
The sharpest slowdown will occur in the United States, where the economy is now forecast to grow by 1.7% this year, compared to 5.0% in 2000.

But Europe will escape the worst of the slowdown, with its growth forecast reduced from 3.1% to 2.6%.

That is slightly higher than projected by the International Monetary Fund, which last week forecast a sharper slowdown in European growth.

And the OECD says that the UK economy will grow at 2.5% this year, close to the UK government's own economic forecast.

But the OECD is relatively optimistic that the world economy will recover by 2002, forecasting a growth rate of 2.8%.

The forecast assumes a small rate cut by the European Central Bank this year, as inflation pressures in Europe are expected to ease.

Risks continue

The OECD projections also assume that there will be further interest rate cuts in the United States which would lead to an economic recovery in the second half of the year.

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But it warned that there could be further risks to the American economy.

"A major risk to this picture is that more fundamental imbalances are present, either in the United States or elsewhere, which will require more severe and protracted adjustment or that could be seriously aggravated by what might otherwise be a mild slowdown," the report said.

The high level of consumer debt, and further falls in the US stock market, could further hit consumer confidence, while business investment could fall further, leading to the need for deeper rate cuts to put the US economy back on track.

Slow trade growth

The slowing US economy will also take its toll on the level of world trade, and hit particularly hard Asian countries like Japan which rely heavily on exports.

The OECD says that the Japanese economy, the world's second largest, will only grow by 1% this year, a sharp revision of its earlier prediction of 2.3% growth.

It says the Japanese economy, struggling for years with bad loans, was "faltering and at risk of entering a downward spiral."

And it warns that growth prospects in Canada, Mexico and South Korea will be hurt by the US slowdown.

Effect of agriculture crisis

The OECD warned that the effect of BSE and foot and mouth disease might be more severe than previously thought.

It said that "the impact could be much larger than suggested by the size of the meat industry itself if the disease were to have important effects on the tourism industry".

And it pointed out that UK GDP might have been reduced already by between 0.1% and 0.3%.

It noted that in Denmark, Ireland and the Netherlands, meat exports accounted for respectively 1.7% percent, 2.1% percent and 1.2% of GDP in 1999, and "a strict and lengthy embargo on such exports would have significant effects on economy-wide GDP."

The OECD member countries include the 15 EU countries, plus the United States, Canada, Japan, Australia, New Zealand, Norway, Switzerland, Mexico, South Korea, Hungary, Poland, Turkey, the Czech Republic, the Slovak Republic, and Iceland.

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