OECD cuts forecast for U.S. growth amid housing slump

The OECD on Wednesday reduced its forecast for U.S. economic growth and recommended a rapid cut in interest rates to limit the fallout from a housing and mortgage market slump that has sparked global financial market turmoil.

In an update to its economic forecasts for major industrial nations, the Paris-based Organization for Economic Cooperation and Development also said interest rates should not be raised for the moment in Japan or the 13-country euro currency zone.

It said it was impossible at present to evaluate the potential damage which broader financial market turmoil could add to the direct impact of a sharp downturn in U.S. housing and a defaults crisis in the subprime mortgage market there.

Specifically:

“Recent developments have revealed serious imperfections in the functioning of U.S. housing markets and, more broadly, in credit markets worldwide,” Cotis said.

The OECD forecast third-quarter growth of 0.5 percent in GDP quarter-on-quarter, which is roughly 2 percent annualised, and a subsequent 0.4 percent for the fourth quarter, which equates to about 1.6 percent in standard U.S. data publications.

Those predictions were on the high side, with large margins of error and an as yet unquantifiable hit from market turmoil that could potentially push either quarter to zero growth or even a contraction, Cotis said.

In Europe, growth remained relatively dynamic, and the case for further rises in ECB rates for the euro zone was valid, but not until it became clearer how the gyrations in fragile and fear-riven financial markets would pan out over time, he said.

Heh. Contained.

The report can be picked up here. I hadn’t even known the OECD went so far as to suggest moves for sovereign central banks, to be honest. Time I began paying more attention. Non-Eco 1 graduates: a recession is two (or more) successive quarters of negative GDP growth. So at a guess of 0.5%, the OECD has the US just above recession; their margin-of-error for Q3 still is positive, but could take it negative for Q4 – so start applying now for that credit card you’ll use for the Christmas presents! The economy needs your debt.

OECD

Close, but just, ought to be the result. Details of the risk-volatility, of which they speak worriedly, can also be found in their press-release.

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