The Economy

OECD Sees Weak U.S. Growth, But No Recession

March 13, 2007

OECD says U.S. economy would expand by about 2% while the eurozone economy would grow by 2.5%.

The OECD said on March 13 that it expects growth in the U.S. to be subdued this year, but a recession in the world's biggest economy was unlikely despite concerns about the housing market. And it urged the U.S., eurozone and Japanese central banks to avoid raising interest rates further.

OECD chief economist Jean-Philippe Cotis said that the U.S. economy would expand by about 2% in the first half on an annual basis, while the eurozone economy would grow by 2.5%.

"The US economy has shifted into lower gear and the robustness of the recovery in Continental Europe has been confirmed," said Cotis in written remarks prepared for a quarterly review of the world economy.

In Asia, growth was "holding up well," but Japanese expansion remained "unbalanced" because lackluster consumer spending was lagging vigorous business investment and corporate profits.

Concerns about a recession and a "hard landing" in the U.S. were sparked last month when the highly influential former head of the Federal Reserve, Alan Greenspan, suggested pressures were building for a contraction later this year. This assessment, coupled with sharp falls on the Shanghai stock exchange, led to a week of jittery trading on global stock markets with broad losses for equities across the world. The fall in global stock markets "may reflect a measure of normalization in the pricing of risk," Cotis said.

Cotis also suggested that the U.S,. Japanese and European central banks should avoid raising interest rates further, saying inflation conditions did not justify monetary tightening. He acknowledged that inflation was "still a bit too high for comfort" for the Federal Reserve in the United States. But he added: "With growth set to remain subdued in the near term, there is no compelling case for the time being to resume tightening" interest rates. Cotis also suggested the European Central Bank had no basis for further rate increases.

In Japan, "deflation is lingering on and the policy rate should not be raised before inflation is firmly positive." The Bank of Japan raised interest rates last month for only the second time in over six years to 0.5%.