Economic recovery in sight as contraction slows, says OECD

CONTRACTION IN world economic output appears to be slowing and a recovery could begin at the end of this year, Organisation for…

CONTRACTION IN world economic output appears to be slowing and a recovery could begin at the end of this year, Organisation for Economic Co-operation and Development (OECD) chief Angel Gurria said yesterday.

Indicators ranging from US house sales to Chinese exports are beginning to pick up and the global economy is no longer in free fall, he said during a speech to an economic forum.

His comments came as the Bank of Japan yesterday upgraded its outlook for the world’s second largest economy for the first time in nearly three years, raising hopes that the country could be through the worst of the global recession. The central bank said exports and production were beginning to bottom out and the effects of government stimulus spending should soon begin to kick in. “The deterioration in economic conditions is likely to moderate gradually, leading to a levelling out of the economy,” the BoJ said in a statement following a meeting of its policy board.”

There was also signs yesterday of further improvement in the global credit market when the cost of borrowing – in dollars between banks for three months – had its biggest weekly drop as central-bank cash injections and interest-rate cuts made financial institutions less wary of offering credit.

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The London interbank offered rate, or Libor, for such loans was little changed at 0.66 per cent today, bringing its decline this week to 17 basis points, the most since the five days through December 19th, when it fell 42 basis points, according to data from the British Bankers’ Association. Libor is used to set borrowing costs on about $360 trillion of financial products globally, according to the association.

“Overall it shows conditions in the money market have improved and lending has become easier,” said Karsten Linowsky, a fixed-income strategist in Zurich at Credit Suisse Group, Switzerland’s biggest bank by market value.

Asked if world output could begin to recover by the year end, Mr Gurria said: “I would say yes; the issue of recovery does not mean that we start to have very clear positive figures but that first the world economy stops contracting.” Forecasts for OECD member countries on June 25th will be the first since the beginning of the crisis not to show a serious deterioration in GDP, Mr Gurria said. The 30-nation organisation expects member economies to contract 4.3 per cent this year and 0.1 per cent in 2010.

The US will recover before Europe due to the larger economic stimulus package launched by Washington and the fact that the US financial crisis is more advanced, Mr Gurria said. “Green shoots are appearing,” he said.

Mr Gurria played down the threat of credit rating cuts for large economies such as the UK and the US. Standard Poor’s lowered its outlook on the UK to negative on Thursday, putting at risk Britain’s AAA rating. – (Reuters/Bloomberg/Copyright The Financial Times Limited 2009)