OECD warns of a sharp slowdown in global growth

Leading indicators of Paris-based organisation all show declining activity

The global economy is still slowing, according to a new report from the Organisation for Economic Co-operation and Development, fuelling fears that countries such as the UK are heading back into recession.

The Paris-based organisation says that every country it monitors experienced a slowdown in economic activity during September, according to its composite of leading economic indicators (CLIs). "Compared to last month's assessment, the CLIs point more strongly to slowdowns in all major economies," the OECD said.

The latest survey shows the UK, France, Germany, Italy, Canada, China, India and Brazil all falling below their long-term trend (indicated by a CLI index reading of 100). The OECD's indicators anticipate turning points in economic activity relative to trend. A turnaround in an indicator tends to precede turning points in economic activity by about six months.

Howard Archer, the chief UK economist from IHS Global Insight, said that the latest OECD figures were particularly worrying news for the British economy. He said: "The further deterioration in the OECD leading indicator in September to be clearly below 100 ties in with mounting concern that the UK could be heading back into recession."

Japan, Russia and the US managed to stay above the long-term trend on the OECD's indicators. And there was some encouraging news from Japan yesterday as it registered GDP growth in the third quarter of 1.5 per cent, as production bounced back after March's tsunami and nuclear disaster.

But the Japanese economy minister, Motohisa Furukawa, warned that there are still potential future shocks looming for Japan. He said that policymakers need to "pay adequate attention to downside risks, such as possible deterioration in foreign economies, rapid appreciation in the yen and the impact of damage from the Thai floods".

And the depressing picture for Europe was reinforced by eurozone industrial production figures from Eurostat yesterday, which showed a 2 per cent fall in September on the previous month – the biggest monthly decline since September 2009. Overall, production of capital goods dropped by 4.2 per cent while output of durable consumer goods slid by 3.8 per cent, after rising in previous months. Energy production slipped by 1.4 per cent. Industrial production in Italy was down 4.8 per cent. In Portugal it was down 5.8 per cent and 2.9 per cent in Germany. Estonia registered a 10.9 per cent decline.

Elsewhere in Asia, Indian inflation remained broadly unchanged in September, at an uncomfortably high 9.73 per cent. This is the 11th straight month that year-on-year price increases have exceeded 9 per cent. High inflation limits the scope for the Indian central bank to cut policy rates and help the country cope with the economic disruption of the global slowdown. At the end of last month, the OECD slashed its 2012 growth estimate for the United States to 1.8 per cent from 3.1 per cent and cut its forecast for growth in the eurozone next year to 0.3 per cent from 2.0 per cent in May.