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OECD right to highlight fragility of the recovery

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Opinion about the strength or otherwise of the global economic recovery is polarized between the cheerleaders of Wall Street and more sanguine public bodies like the Organisation of Economic Cooperation and Development.

OECD secretary general Angel Guria points to a spluttering recovery at risk from the rising jobless tally, weak bank lending and high oil prices. You could also throw in the fall in US annual auto sales from 16 to 11 million, and the risk of mortgage resets to US house prices this year with another round of massive US bank provisions the logical result.

Recovery risk

Major central banks have no reason to contemplate removing stimulus measures, warns the OECD, which reckons we should still be worrying about the recovery, not inflation. There is more reason for concern.

Figures published by the Federal Reserve late last week showed total US credit and borrowing falling by the largest ever amount in November with records going back 70 years. Total borrowing dropped by a record $17.5 billion, far higher than the $5 billion expected by economists, and was 8.5 per cent lower than in October.

American consumers are not borrowing because they are worried about their jobs, and the latest data showed 85,000 jobs axed last month, again more than expected. In addition, US banks are not rushing to lend to bad credit risks anymore, that ended with the sub-prime mortgage crisis.

US economy biggest

Lest we forget consumer spending accounts for 70 per cent of the world’s largest economy. If the US consumer is spending less then it is hard to find an offsetting factor big enough to fill the gap to maintain global demand. The Chinese economy is too small. The Euro-zone is in a big economic mess too. Japan is even worse.

Officially the OECD is sticking to its forecast of 1.9 per cent growth for its member countries in 2010, and has no plans to update its prediction, unlike the International Monetary Fund whose revision to 3.1 per cent growth is expected.

No official body is forecasting a double-dip recession. But then who saw the recession coming in the first place? Perhaps we should be expecting the unexpected when so many expectations are not coming up to scratch.

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Written by Peter Cooper

January 10, 2010 at 9:48 am

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