Housing weakness will exert a longer and more potent than expected drag on the U.S. economy, leading to a distinct drop in GDP growth, the Paris-based Organisation for Economic Co-Operation and Development [OECD] said Wednesday. "It has not yet been possible to fully evaluate the negative impact of credit market turbulences on economic activity. In any event, consumer resilience will be tested by mortgage rate resets, tighter credit standards, weaker collaterals and slower job creation," it said, in its interim assessment of economic conditions of the world's 30 richest countries. Recent developments have highlighted 'serious imperfections' in worldwide credit markets, which will likely lead to greater regulation and a more active stance against predatory lending. Fiscally, it said, revenue buoyancy has "continued to surprise to the upside." Still, the OECD dropped its growth expectations for the world's seven largest economies by 0.1% to 2.2%, and said its estimates were likely overly optimistic. While housing downturns often lead to a recession in the U.S., OECD noted consumer spending has been resilient, and said that if job losses were not extensive, a "pronounced recession" could be avoided. Eurozone growth may have peaked, it said, but growth should nonetheless pick up in H2 2007. Japan, despite a weak first half, should continue to expand.
Sources: OECD interim assessment (.pdf), Financial Times
Commentary: The Financial Times' Top 500: This Year's Global Shuffle • The Fed Continues to Get it Right
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