Recovery slowing more than foreseen

“Recent high-frequency indicators point to a slowdown in the pace of recovery of the world economy that is somewhat more pronounced than previously anticipated,” the OECD said in an interim economic assessment.

As a result, “growth could slow in the G7 economies to an annualized rate of about 1.5 percent in the second half of the year.”

The previous estimate, in the OECD's May Economic Outlook, for GDP growth in the G7 countries was 1.75 percent.

According to the assessment, annualized quarter-on-quarter GDP growth in the United States is expected to climb to 2 percent in the third quarter of this year, before slipping back to 1.2 percent in the final quarter.

The OECD sees Japan's economy expanding by only 0.6 and 0.7 percent, respectively, in the last two quarters of 2010, while Germany's GDP growth is foreseen to slide to 0.7 percent in the third quarter and then climb modestly to 1.1 percent in the fourth quarter of this year.

However, it was not clear if the loss of momentum in the recovery was merely a temporary glitch or a sign of greater underlying weaknesses in private spending at a time when government economic stimulus plans were gradually being removed.

“The uncertainty is caused by a combination of both positive and negative factors,” said OECD chief economist Pier Carlo Padoan. “But it is unlikely that we are heading into another downturn.”

Among the factors fueling the organization's pessimism are a loss of momentum in the recovery in world trade, a moderation in the bounce-back of industrial production and a weakening of business confidence.

On the positive side, the low level of private investment suggests that investment is unlikely to weaken in the coming months, and the level of inventories makes a run-down of stocks unlikely in the near term, the OECD said.

For the eventuality that the loss of momentum is temporary, the OECD cautioned governments to keep fiscal stimulus plans in place “for a few months” while continuing to address large budget deficits.

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