Global Economic Prospects `Less Buoyant,' OECD Says

By Sandrine Rastello

Sept. 5 (Bloomberg) -- The Organization for Economic Cooperation and Development prospects said the financial market turmoil that followed the collapse of the U.S. subprime mortgage market has curbed prospects for global economic growth.

"Downside risks have become more ominous,'' Jean-Philippe Cotis, the OECD's chief economist, told reporters today in Paris.

The organization cut forecasts for growth in the U.S. and the 13-nation euro region this year and said "there may be a case'' for an interest rate cut by the U.S. Federal Reserve. Cotis said a rate increase by the European Central Bank may be ``warranted'' after financial markets "steady.''

The assessments by the OECD were the first since the mortgage rout triggered concern spending and investment will falter and crimp the global expansion. European economic growth has already showed signs of peaking. Consumer and business confidence dropped more than economists' forecast in August, while manufacturing and service-industry growth slowed.
The OECD cut its 2007 growth forecast for the U.S. to 1.9 percent from a 2.1 percent estimate made in May. The expansion pace in the euro region will slip to 2.6 percent from 2.7 percent, with the forecast for France slashed to 1.8 percent from 2.2 percent. It held its forecast for Japan at 2.4 percent.

The European Central Bank and other central banks injected more than $350 billion of extra funds into money markets to smooth lending between banks after the overnight lending rate in Europe shot up to 4.62 percent. The U.S. Federal Reserve on Aug. 17 unexpectedly cut its discount rate, at which it makes direct loans to banks, by 0.5 percentage point to 5.75 percent.
The Paris-based OECD, founded in 1961 from the organization formed to administer Marshall Plan aid after World War II, monitors the world's most developed economies and seeks to coordinate domestic and international policies.