MercoPress. South Atlantic News Agency

OECD urges from G7 and G20 strong signals of leadership and confidence

Economist Padoan: leaders must show they are prepared to take action if growth slumps

The outlook for economic growth in developed countries has got much worse in the last three months, the OECD said Thursday, urging leaders of G7 and G20 countries to send strong signals to restore flagging confidence.

On the eve of a meeting of Finance ministers from the Group of Seven industrialised nations in Marseilles, France, the Organisation for Economic Co-operation and Development called on central banks to keep rates low and be ready to pursue other forms of easing.

The latest growth estimates marked a sharp slowdown from the Paris-based organisation's last forecasts in May but used different methodology so were hard to compare precisely.

The OECD forecast growth across the G7 group of major industrialised economies would average 1.6% on an annualised basis in the third quarter before slowing to just 0.2% in the final three months of the year.

In May, the OECD had forecast growth across the 34-nation club of rich nations of 2.8% in the third quarter and 2.7% in the final three months of the year.

“With respect to three months back the growth scenario looks much worse, one would say that growth is stagnating” said OECD chief economist Pier Carlo Padoan. “We are witnessing a growth slowdown across OECD countries”.

The slowdown would hit Germany particularly hard, with the OECD forecasting that Europe's biggest economy would see annualised growth of 2.6% in the third quarter before contracting 1.4% in the fourth.

The US economy, meanwhile, would see annualised growth of 1.1% in the third quarter slowing to 0.4% in the fourth quarter.

The OECD, which is due to provide more complete forecasts later this year, warned that its latest outlook had an abnormally high margin of error due to exceptional uncertainty.

G7 finance ministers and central bankers are to discuss the struggling world economy at their meeting Friday, but a coordinated action plan to calm volatile financial markets is unlikely, officials said.

However, Padoan warned that the G7 finance chiefs risked sending the wrong signal if they did not take the opportunity to indicate they are prepared to take action if growth slumps more than expected in the short term.

Their G20 counterparts should then follow up with a collective signal of support for growth when they meet on the sidelines of IMF annual meeting at the end of the month.

“I think that we need strong policy signals both from the G7 and G20, therefore from large emerging markets,” Padoan said.