OECD says market turmoil will hit world growth

By Scheherazade Daneshkhu, Economics Correspondent

Financial Times

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.

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.

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.

“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. More...