OECD says G7 economies slowing faster than forecast

The economies of the G7 industrialised nations are slowing faster than previously forecast and it remains unclear whether the loss of momentum is temporary or whether further stimulus will be needed, the Organisation of Economic Cooperation and Development said.

The Paris-based think tank now expects gross domestic product in the G7 to rise about 1.5% in the second half. The organization said the outlook is uncertain, due both to strengths and weaknesses in the economies.

On the downside, the biggest threat may be the slowdown in private consumption because of weakness in the housing market, high unemployment and households continuing to put their finances back in order after the recession.

On the upside, financial conditions have stabilized, corporate profits have been robust and it’s unlikely that private investment will decline further, it said.

The OECD said because of the mix of strengths and weaknesses it’s hard to say if the slowdown will be temporary or more protracted.

If it’s a temporary phenomenon, policy makers should postpone withdrawing stimulus measures, but continue with plans to cut massive debt levels built up during the recession.

If private spending turns out to be weaker than anticipated, policymakers may have to consider more easing and a longer-term commitment to near zero interest rates. Where possible, governments may have to delay cutting debt, it said.