Growth likely to slow down in O.E.C.D region

By Batuk Gathani

BRUSSELS, MAY 4. According to a recent survey by the Paris-based O.E.C.D. - comprising 30 of the world's richest and most industrialised countries - the economic expansion in the O.E.C.D. region will drop to two per cent this year from 4.1 per cent last year. The O.E.C.D. has asked the European Central Bank to cut interest rates by half a percentage point for euro-zone economies to meet the challenges posed by the slowing economic growth rate in the U.S.

Essentially a think-tank, the O.E.C.D. has pointed out in its bi- annual report that a steep fall in the U.S. stock markets could hit consumer spending and tilt the world's largest economy into recession. There are differing perceptions about global economic trends. In the industrialised countries, fresh evidence would suggest that the manufacturing gloom is now also spreading to service sector. A British economic survey reveals a sharp drop in British business confidence. At the same time, the current economic scenario in the European Union's most powerful economies - Germany, France, Italy and the Benelux - also look depressing.

The only silver lining on an otherwise dismal scene is that the unemployment rate in the euro-zone region may be stabilising if not improving. A weak euro in the 12 euro-zone countries has meant an improvement in the export performance. But this is mainly attributed to competitive currency rates as the euro has devalued against the U.S. dollar by 22 per cent since its launch in January 2000.

The markets have mixed feelings about the dollar/euro rate and with the widely anticipated decline in the value of the dollar, euro-zone manufactured goods and services may even loose their competitive edge. The O.E.C.D. has said the global economy may recover if there is a pick-up in the U.S. economic growth rate later this year. Analysts are worried by the rising household debt in the U.S. with the recent fall in the stock markets. A U.S. economic slowdown could have a spill-over effect on the euro-zone region.

Many Europeans feel that the risk of global recession could increase due to indications that a ``soft landing'' of the U.S. economy may be rougher than expected. This fear has led to prominent fund managers opting for higher cash positions. The current European cash levels are at their highest point since the market meltdown in 1998 triggered by the Asian cash crises.

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Section  : International
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