Global recovery slowing: OECD

Theglobal economic recovery may be slowing more than previously anticipated,the Organization for Economic Co-operation and Development said Thursday in its latest report.

The Paris-based group said growth amongthe Group of Seven countries is expected to be around1.5 per cent on an annualized basis in the second half of 2010, compared with a previous estimate of around 1.75 per cent in the OECDs May Economic Outlook.

The OECD said the loss of momentum in the recovery is temporary, although uncertainty has increased.

"The uncertainty is caused by a combination of both positive and negative factors," OECD Chief Economist Pier Carlo Padoan, said in the report. "But it is unlikely that we are heading into another downturn."

While consumer spending is set to remain weak, a combination of robust corporate profits and low business investment suggests that capital spending is unlikely to weaken further, Padoan said.

Giventhat inventories are now close to desired levels, however, a renewed depletion of stocks is also unlikely.

Growth remains strong

Based on the most recent data, the OECD short-term forecasting models show that U.S Gross Domestic Product is expected to rise by 2.0 per cent in the third quarter but then moderate to 1.2 per cent in the fourth quarterof 2010. In Japan, GDP growth is forecast at 0.7 per cent in the fourth quarter after 0.6 per cent in the third.

The combined GDP of the three largest countries in the euro area is projected to grow at 0.4 per cent in the third quarter, rising to 0.6 per cent in the fourth quarter. Second quarter 2010 GDP grew by 1.6 per cent in the U.S.; by 5.1 per cent in the three largest countries of the euro area and by 0.4 per cent in Japan.

The current stance of both fiscal and monetary policy should remain on course, Padoan said. However, if the slowdown in the recovery becomes entrenched, and the risk of downturn increases, additional monetary stimulus in the form of quantitative easing and keeping interest rates close to zero for a longer period may be necessary.

Canada hikes interest rate

The Bank of Canada boosted its key interest rate by one-quarter of a percentage point Wednesday, pushing the target for the overnight rate to one per cent.

The country's central bank said the Canadian economic recovery had been uneven so far. But improved personal and corporate spending in the previous quarters and into the future was enough to justify an increase now to the central bank's key lending rate.