OECD interim report states need for policy stimulus stronger in US than in Europe

20 March 2008

Inflation in US and Europe is at uncomfortable levels as economies slow, the OECD says in its latest interim assessment. But in contrast to the US, the near-term outlook for the euro area does not point to the need for policy stimulus.

 

The US economy is now essentially moving sideways, if not contracting outright, the report states. “It may be premature to declare a recession, but with the pace of activity so far below potential, economic slack is widening rapidly.”

 

As for the Euro area, the deceleration has been less abrupt but growth is set to remain on the low side of potential for some time, even though exports so far seem to hold up well in the face of euro appreciation.

 

In Japan, quarterly national accounts are volatile and prone to large revisions, but overall the pace of underlying growth seems to be softening as well, notwithstanding the support from still buoyant neighbouring Asian economies.

 

The factors that are at play especially in the US but also in a number of other OECD economies are unlikely to fade soon, the report states. These include the effects on the real economy from financial turmoil, the tournament of the global housing cycle, and the squeeze of household real incomes by soaring energy and food prices.

 

Interim report

 

© OECD