OECD cuts US growth forecast to zero

The Organisation for Economic Co-operation and Development has cut its growth forecasts for the US economy for the first half of the year, amid more signs of a gathering slowdown.

The 30-country organisation stopped short of declaring the US to be in recession, but it predicted no growth at all in the second quarter of the year.

"Recent data, including the decline in payroll employment witnessed in the first two months of 2008, suggest that the US economy is now essentially moving sideways, if not contracting outright," Jorgen Elmeskov, head of the OECD's economics department, wrote in the organisation's interim report. "It may be premature to declare a recession, but with the pace of activity so far below potential, economic slack is widening rapidly."

The real economy is not sheltered from the turmoil in global financial markets, the OECD warned, and the "new-found prudence" of banks and investors is likely to restrain economic growth. It predicted 0.1 per cent quarter-on-quarter growth in the US for the three months just ending, and flat GDP in the second quarter.

Growth in the eurozone would be higher than in the US, the organisation predicted, and inflationary pressures are such that the European Central Bank has no room to cut interest rates. For the UK, the OECD's new forecasts call for quarter-on-quarter growth of 0.6 per cent in the UK for the next two quarters, a modest slowdown from a rate of 0.8 per cent a year ago.

The grim predictions for the US economy came as economic data showed more evidence of a slowdown. Factory activity in the mid-Atlantic region contracted for the fourth consecutive month in March, according to the Philly Fed survey, and its measure of manufacturing jobs in the region showed its worst contraction since 2003.

US-wide, new unemployment claims climbed 22,000 last week, while the overall number on the benefit rolls rose to a three-and-a-half-year high a week earlier.

Meanwhile, FedEx, the shipping company which has become a bellwether for the US and the global economy, cut its profit forecasts for the third time in a year. "The crystal ball is very murky now," said Alan Graf, chief financial officer.

The Economic Cycle Research Institute, a New York-based forecasting group, said the economy is "unambiguously" in a recession. But Barclays Capital predicted modest growth in the first half of this year and a strong rebound in the second half. Larry Kantor, co-head of research, cited strong corporate balance sheets – outside the financial sector – and the benefit to exports of a weak dollar.