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IPE special report May 2018

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Economies to be hit, but miss recession - OECD

GLOBAL - Economies are likely to see reduced growth as a result of the recent credit crisis and housing slowdowns in the US and Ireland but are expected to avoid a global recession, according to the OECD.

Details of the Organisation for Economic Co-operation and Development's latest economic outlook report - produced twice a year - reveal while all governments have been forced to rethink economic growth on the back of financial turmoil, cooling housing markets and higher energy and commodities prices, things are "not actually that bad in view of recent shocks".

More specifically, the OECD said an "accelerated adjustment" in the US housing sector will slow growth and will modestly push up unemployment, but it "will not trigger a recession" and is more likely to produce a "partial decoupling of euro area activity from that of the United States".

"The trouble is that the probability distribution around this outcome has a fat tail on the downside," suggests the OECD study.

"The main negative risks include a more pronounced or generalised cooling of housing markets than projected; additional turbulence in financial markets; and further upward pressures on already high commodity prices."

Inflationary pressures are likely to remain low because of pressures elsewhere, according to the study, with GDP in the eurozone predicted to reached 2.6% in 2007 but dropping to 1.9% in 20087 and settling at 2% in 2009.

Similarly, Japan is expected to continue to be driven by overseas influences but this is likely to lift its economy out of deflation by Q2 2008 towards 0.5% inflation rate at the end of 2009 as its current account balance of 4.7% is significantly healthier than the US 5.6% deficit and 0.2% in the euro region.

This report comes on the same day as the Bank of England reduced its base interest rates because of concerns about the slowing economy.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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