Thought for the day
Thought for the day (latest)
Sometimes controversial, sometimes quirky but always thought-provoking.
Michael Baxter, freelance journalist, provides his personal insights on current economic
and business issues - essential reading for investors interested in fuel for the mind.
For previous thoughts for the day, click here.
10/09/2010 - The OECD has been at it again
This time it has downgraded its projections for growth. But there is at least one notable exception: the UK.
It has upped its forecast for growth to 0.7 per cent, from 0.5 per cent for Q3 this year, and downgraded it a tad from 0.5 per cent to 0.4 per cent for Q4.
As for next year, it reckons growth will come in at 2.5 per cent, which is the same as its previous projection.
But what is surprising is that of the G7, it has the UK occupying position numero uno for Q3, although it has Canada knocking us back to second place for Q4.
Annualised projected percentage growth for Q3 and Q4 is as follows:
Q3 Q4
US 2.0 1.2
Japan 0.6 0.7
Eurozone 0.4 0.6
Germany 0.7 1.1
France 0.7 0.3
Italy -0.3 0.1
UK 2.7 0.1
Canada 2.2 2.3
G7 1.4 1.0
But alas, the UK aside, the OECD is worried.
It said: "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…There is nevertheless great uncertainty in the outlook arising from a combination of weaknesses and strengths."
And then it went into more detail. One of the big fears expressed by the OECD relates to house prices. It put it this way: "Private consumption growth may be constrained by additional adjustments by households to the balance‐sheet losses suffered during the recession and in response to housing market developments, should house prices weaken further."
Well, that's a long-winded way of saying it, but the OECD is right. There are good reasons to fear house prices are set to fall in both the UK and the US, and this may well lead to a fall in consumer spending.
But the OECD really does seem to have a problem making up its mind.
It said: "If the ongoing slowdown is temporary, the appropriate policy response would be to postpone the withdrawal of monetary support for a few months, while maintaining planned budget consolidation to address unsustainable fiscal positions. Market conditions allowing, the automatic stabilisers should be allowed to work unimpeded around the planned consolidation path."
Then it said: "On the other hand, if the slowdown reflects longer‐lasting forces bearing down on activity, additional monetary stimulus might be warranted in the form of quantitative easing and commitment to close‐to‐zero policy interest rates for a long period. Where public finances permit, planned fiscal consolidation could be delayed."
I like the way it said "If the ongoing slowdown is temporary". In other words, the OECD really does not know.
I am sure its projections for this quarter and next will be more or less right. But beyond that I wonder sometimes if you could have more luck predicting growth with the aid of a blindfold and a pin.
There is one more interesting thing worth remarking on regarding the OECD figures. It is nothing new, but since their data was there I thought I would mention it.
Of the 28 countries the OECD measured, the UK had the fifth biggest fiscal deficit in 2009 as a percentage of GDP. Ireland was number one, followed by Greece, Spain and the US.
In terms of gross government debt, the UK was actually quite a long way down the list in 2009 (13th biggest). The UK's gross government debt was 72 per cent of GDP, compared to 193 per cent in Japan, 129 per cent in Italy, 119 per cent in Greece, 87 per cent France, 85 per cent US, and even 77 per cent in Germany.
These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.
