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The economic recovery is close to flatlining

 Economic recovery appears to have come close to a halt in the major industrialised economies, with falling household and business confidence affecting both world trade and employment, according to new analysis from the OECD. Growth remains strong in most emerging economies, albeit at a more moderate pace.

 

“Growth is turning out to be much slower than we thought three months ago, and the risk of hitting patches of negative growth going forward has gone up,” OECD Chief Economist Pier Carlo Padoan said during a presentation of the OECD’s latest Interim Economic Assessment. 

The OECD estimates that economic growth in the G7 economies excluding Japan will remain at an annualised rate of less than 1% in the second half of 2011. 

The reasons for this include the debate over fiscal policy in the United States, the sovereign debt crisis in some countries of the euro area and the fact that governments have fewer options to boost growth are driving both business and consumer confidence downward. The extent of bank deleveraging, due to the impact of regulatory changes, may also have been underestimated. 

The warn that earlier improvements in the labour market are now fading, hiring intentions are softening and there are greater risks that high unemployment could become entrenched. 

The OECD continues to agree with the need for “credible fiscal frameworks”, which basically means cutting spending and/or raising taxes to reduce debt. However, they now say that such actions should still allow room “for short term fiscal stimulus if needed”, 

So, on a daily basis we are getting further nudges towards fiscal stimulus and looser monetary policies to inject greater liquidity into economies. The Bank of England has just rejected the latter today, in deciding to put further quantitative easing on hold. Whilst the UK government shows no sign of easing off on its headlong rush to reduce debt, whatever the consequences might be.

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Posted in economic growth, Fiscal stimulus, OECD

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