The US economy slipped into recession after the September 11th attacks but growth should pick up from the middle of next year, the Organisation for Economic Cooperation and Development (OECD)said yesterday in its twice-yearly Economic Outlook.
An independent organisation in New York that tracks the US economy reached much the same conclusion yesterday, and said the recession would be "mild". However, the prospect of a US recession lasting until next autumn and doubts about the timing of a global recovery in the OECD report sent shares into retreat on Wall Street and knocked the dollar off a three-month high. Both had rallied on prospects of an early end to the war in Afghanistan. The mood on Wall Street was further dampened by San Francisco Federal Reserve president Mr Robert Parry, who warned in a speech that the economy would not see a significant rebound before the middle of next year.
The OECD forecast that US economic activity in the second half of 2001 would shrink by 0.6 per cent, and in the first six months of 2002 by 0.1 per cent. This would signal a shallow recession lasting at least nine months.
The conventional definition for recession is two consecutive quarters of negative growth. The OECD projected growth of 1.1 per cent growth for all of this year, slowing to 0.7 per cent in 2002 before picking up to 3.8 per cent the year after.
The organisation called on the US Federal Reserve to call a halt to rate cuts to guard against the danger of inflation, noting that 10 rate cuts this year had brought short-term lending rates down from 6.5 to 2 per cent, the lowest level since 1961. "Cutting interest rates further is an option if the economy remains weak, but the fact that the full impact has not been seen, owing to the usual lags, argues for a pause in rate reductions," the OECD said. The Fed meets again on December 11th to consider its next move and is expected to cut rates again to boost the money supply.
Soaring unemployment and a slump in consumer confidence posed the greatest dangers to the US economy, the OECD report said. It predicted that jobless levels would rise to 6.2 per cent next year, with 8.9 million people out of work, 2.1 million more than this year.
Meanwhile, a key forecasting gauge for the US economy signalled a recession but one that would be less harsh than Wall Street expectations. The Conference Board reported that the US index of leading economic indicators rose 0.3 per cent in October after recording its largest decline in five years last month.
"The US economy was weakening before September 11th," said the board's chief economist Mr Ken Goldstein. "The terrorist attacks clearly caused a deeper decline in the Index than would have otherwise occurred." The index which gauges current economic trends fell 0.2 per cent in October after being unchanged the prior month, meaning that a mild recession was under way, the board said.
