OECD rules out world double-dip recession

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OECD (Organisation for Economic Cooperation and Development) Secretary-General Angel Gurria has ruled out a double-dip recession in the world economy, except for Japan.

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ANKARA – The world economic recovery is slowing down but there is no prospect of a double-dip recession in the rich world excluding Japan, the OECD Secretary-General Angel Gurria said on Tuesday.

Governments in developed economies should seek a balance between measures required for sustaining the economic recovery and fiscal consolidation as it is hard to say whether the current weakness will be short-term or more permanent.

“We are saying yes there is a slowdown in the recovery, not a double-dip recession, just a slowdown in the recovery,” Mr. Gurria told Reuters in an interview in Ankara, where he met the Turkish authorities ahead of publication of a survey on the country.

He ruled out a double-recession in the world economy.

“No, not according to our analysis. You have to take Japan away, because Japan has been fighting with deflation for 10 years. It is a different situation, but other than that no. We don’t see double-digit recession,” he said.

Mr. Gurria said the financial markets showed signs of normalising, but urged governments to be careful and seek a balance between measures for sustaining recovery and fiscal consolidation.

He said the global recovery was fragile.

“Households are still not fully comfortable about the future. Households are still saying: I am not confident about tomorrow. There are still 50-million unemployed people in the OECD countries,” Mr. Gurria said.

He predicted lower growth in Germany in the third quarter of this year, after it recorded a robust 2.2% growth for the second quarter. “Germany’s second-quarter is quite well but it is going to slow down in the third quarter like everybody else,” citing Germany’s reliance on exports and outside economic activity for sustaining its strong economic growth.

Concerning stimulus packages, it is not possible to make a single recommendation as there is very little appetite for stimulus because of worries about debt in Europe.

“Adjust the strategy according to what is happening in the world because we are not still sure whether this (weakness) is going to be long-term,” he said.

BASEL III

The OECD chief said he sees new capital rules set by global regulators for banks, announced on late on Sunday, as a very important achievement but the beginning of a process.

The new Basel III requirements will force banks to hold top-quality capital totalling 7% of their risk-bearing assets, more than triple what they do now.

The capital levels are significantly lower than levels banks globally feared earlier this year and lenders will have until January 2019 to comply with some of the rules.

“This is all about capital. The whole game is about capital, capital, capital,” Mr. Gurria said.

“In general the trade-off is very simple. It is worthwhile to strengthen the capital of the banks even at the expense of a marginal impact on growth because of its benefit for the system,” he said.

The Basel III agreement was reached in Switzerland by central bank governors and top supervisors from 27 countries, after a year of horse-trading and lobbying that involved banks and governments seeking to protect their national interests.

Leaders of the Group of 20 rich and big emerging economies blamed the global credit crisis partly on risky trading by banks and demanded tougher bank capital rules.

© Thomson-Reuters 2010
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