The OECD urged developed nations to be prepared to do more to support the global economy yesterday. Revealing a sharply downgraded international growth outlook for the second half of 2011, the Paris-based economic organisation said that countries with "credible fiscal frameworks" should provide a "short-term fiscal stimulus" if there is a prolonged slowdown in economic activity.
The OECD also called on central banks to keep interest rates on hold and to use other unorthodox monetary policies, such as quantitative easing, to support growth.
The organisation's latest assessment of the global economic outlook said that growth in the G7 economies (excluding Japan) is likely to be less than 1 per cent on an annualised basis in the second half of 2011, less than half what it forecast four months ago.
The OECD expects Japan's next growth figures to be pumped up by post-tsunami reconstruction spending. But the outlook for the rest of the world's developed industrial nations is bleak. The German economy is projected to expand by 2.6 per cent in the third quarter, before contracting by 1.4 per cent in the final quarter.
"Growth is turning out to be much slower than we thought three months ago, and the risk of hitting patches of negative growth going forward has gone up," the OECD's chief economist, Pier Carlo Padoan, said.
These latest forecasts are a considerable downgrade on the OECD's previous report in May, which projected average growth in the second half of 2011 of 2 per cent.
The organisation had previously been a strong advocate of rapid cuts to public spending in order to restore economic confidence in the solvency of governments. But in this latest report the organisation admits that "stronger fiscal consolidation may have been exerting more drag on activity than anticipated". However, in an interview with Sky News Mr Padoan denied that he was suggesting that the British Government should change course in its deficit reduction strategy.Reuse content