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G7 economic growth slowing, says OECD

Economic growth in the G7 is slowing at a faster than expected pace, according to the Organisation for Economic Co-operation and Development.

In its latest interim statement, the OECD says growth could slow in the G7 economies to an annualised rate of about 1.5 per cent in the second half of the year. Overall it predicts that G7 GDP growth will slow to 1.4 per cent in Q3 and 1 per cent by the end of the year.

Of the G7, the OECD says the UK’s GDP growth in the coming quarters will only be second to Canada with annualised quarter-on-quarter growth of 2.7 per cent in Q3 and 1.5 per cent in Q4 2010. In May, the OECD predicted UK Q3 and Q4 2010 GDP growth would remain steady at 2.1 per cent.

The international think tank warns that private consumption growth may be constrained by adjustments by households to the losses suffered during the recession and in response to housing market fears, as well as uncertainty about unemployment going forward.

It says it is unclear whether the slowdown is a temporary phenomenon due to economic fears or whether it is a longer-term problem. The OECD says: “If the ongoing slowdown is temporary, the appropriate policy response would be to postpone the withdrawal of monetary support for a few months, while maintaining planned budget consolidation.

“On the other hand, if the slowdown reflects longer‐lasting forces, additional monetary stimulus might be warranted in the form of quantitative easing and commitment to close‐to‐zero policy interest rates for a long period.”

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