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Bonds Are a 'Safe' Investment: A Big Lie Gets Even BiggerSixth months ago, the OCED predicted that 2008 growth in the 30-nation zone would total 2.3%, following 2.7% growth in 2007.
The growth revision marks a substantial shift in OECD expectations. Earlier, the OECD predicted that member economies would be to withstand the U.S. economic slowdown without considerable negative consequence. That outlook, along with economic analysis from other countries, helped form the basis for the so-called 'decoupling thesis' -- where Europe and other developed countries race along unscathed by the doldrums in the world's largest economy.
However, as the mortgage and related asset default problem intensified in the U.S., and U.S. retail sales started to slump, it became clear that exporting nations would be caught in the slowdown affecting the U.S.
Economic Analysis: While it's critical to confirm OECD projections with official economic data and projections released by member countries, the OECD's downward revision is yet another datapoint signaling a U.S. recession in Q1 2008 and Q2 2008, and its contraction effect on the global economy. To be sure, the 'BRIC' nations of Brazil, Russia, India, and China have made enormous strides in the past 10 years, with China serving as a new regional growth engine, but the day where BRIC and the rest of the developing world can proceed economically untouched in the face of U.S. economic sluggishness has not arrived: there still are not enough consumers in the world to offset the drag effect of a pullback in U.S. consumer spending.
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