The Organization for Economic Cooperation and Development again cut its forecast for 2008 growth in its 30-nation membership -- this time to 1.8% from "less than 2%" -- saying that while the worst of the credit market stress is over, its impact on the global economy is not. [pdf] The OECD now sees 2009 GDP growth in the 30-nation region totaling 1.7%
Both yearly forecasts were weighed down by a lower GDP growth forecast for the U.S. economy, with the OECD now seeing the world's largest economy growing by a scant 1.2% in 2008 and 1.1% in 2009, down from earlier forecasts of 2.3% and 2.4%, respectively. The United States economy is now confronting strong headwinds -- a housing slump, a credit squeeze and inflation, the latter of which is eroding workers' disposable income, the OECD said.
The OECD expects Europe's euro-zone region to grow 1.7% in 2008 and 1.4% in 2009. Japan's economy is expected to grow 1.7% and 1.5% during the same periods.
Emerging market boom seen continuing
Meanwhile, growth in most emerging market nations is expected to remain strong, led by China, India and what appears to be a new economic rising star, Brazil.
The OECD now expects China's economy to grow 10% in 2008 and 9.5% in 2009 following double-digit GDP increases from 2005-2007. China's inflation rate is expected to rise to 6.4% in 2008 from 5.0% in 2007. China's domestic demand remains robust, with rising incomes driving up consumption. [pdf]
India's economy is expected to grow 7.8% in 2008 and 8.0% in 2009 following a roughly 9% average GDP from 2005-2007. India's inflation rate is expected to rise only moderately, to 4.4% in 2008 from 4.1% in 2007.
Brazil economy is expected to grow at a healthy 4.8% rate in 2008 and 4.5% in 2009 following a roughly 4% average GDP from 2005-2007. Brazil's inflation rate is expected to rise to 4.9% in 2008 from 4.5% in 2007. The OECD cited Brazil's strong exports and rebound in investment, the latter of which is helping eliminate capacity constraints.
Economic Analysis: The OECD's report contained a bit of a surprise: it doesn't see a strong U.S. economic recovery in 2009, only a mild recovery. That suggests the OECD expects the U.S. economy to register sluggish growth or negative GDP growth in Q3 and Q4 2008, and perhaps heading into 2009. Moreover, while it's critical to confirm OECD projections with official economic data and projections released by member countries, the OECD's downward GDP revision for the U.S. is yet another data point signaling difficult times for the home economy.
Further, while the U.S. economy weighs on the developed world, the song remains the same in emerging markets: China, India, and now Brazil are hitting on all economic cylinders, with robust output, profits, exports, and investment leading to rising incomes, in an unprecedented boom in the developing world.
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