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OECD says market turmoil will
hit world growth
Scheherazade
Daneshkhu
Financial Times
Wednesday September 5, 2007
Market turmoil and the woes in the US subprime mortgage market
will crimp world economic growth this year, the Organisation of
Economic Co-Operation and Development said on Wednesday, as it
called for better regulation to address the “serious imperfections”
in US housing markets and credit markets worldwide.
Presenting its mid-point assessment between its spring and autumn
Economic Outlook projections for the world’s 30 richest
countries, the Paris-based think tank said prospects for the world
economy were: “clearly less buoyant and more uncertain”
than in its May forecasts.
Although it pared back its expectation for growth in the world’s
seven largest economies by only 0.1 percentage point to 2.2 per
cent, it warned its estimates erred on the upside because it was
still too early to assess the extent to which the repricing of
risk across financial markets would reduce economic activity.
(Article continues below)
“Downside risks have become more ominous in a context where
overall financial market conditions are likely to remain durably
tighter,” it said.
Jean-Philippe Cotis, OECD chief economist, praised central banks
for “swift and forceful action” which had helped contain
financial market turbulence and suggested the timing of the repricing
had been fortunate in happening when world economic growth was
strong.
But he said recent events had revealed “serious imperfections”
in the functioning of credit markets and called for improved supervision
of the US subprime mortgage market.
In the US, the OECD cut its 2007 forecast to 1.9 per cent from
2.1 per cent previously, because the housing sector was set to
“exert a longer and more potent than expected drag.”
In the eurozone, growth was expected to pick up in the second
half of the year after a deceleration in the second quarter. “Nevertheless
the peak of euro activity upswing now seems to lie behind,”
the OECD said, as it downgraded its forecasts for Germany, France
and Italy.
The expansion in Japan was set to continue but the central bank
should wait for the current market volatility to subside and for
a clear end to deflation before raising interest rates, the OECD
said.
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