Stock market losses and poor business confidence could delay the long-predicted recovery in the global economy until well into next year, according to the Organisation for Economic Co-operation and Development (OECD).
Leading central banks should keep interest rates low in the near future and push them lower in the 12-nation euro zone to shore up growth because the economic upturn spotted last spring faltered as 2002 wore on, the OECD said today
"The global recovery is slow and irregular," the Paris-based think-tank, whose 30 member countries account for the bulk of the world's wealth, said in its twice-yearly economic report.
It nevertheless forecast improvement, predicting growth of 1.5 per cent this year, 2.2 per cent in 2003 and 3.0 per cent in 2004. For the US economy, it forecast growth of 2.3 per cent in 2002, 2.6 in 2003 and 3.6 in 2004.
In the euro zone, it forecast growth of 0.8, 1.8 and 2.7 per cent, respectively. For Japan, in the doldrums for a decade, the OECD forecasts shrinkage of 0.7 per cent this year, followed by modest expansions of 0.8 and 0.9 per cent in 2003 and 2004.
The OECD said it only expected the world economy to start firing on all cylinders in 2004. "Forward looking indicators show that a solid recovery may be rather slow to materialise," it said.
The OECD said corporate scandals like the accounting scam that toppled US energy giant Enron had seriously rattled investor and business confidence.
OECD chief economist Mr Jean-Philippe Cotis said in the report profit prospects were now better but professional investors and households were likely to take time to get over the fallout.
"This is why the present Outlook [OECD report] incorporates a period of sluggish spending in most of the OECD until mid-2003," he said. The global recovery was "slow and fragile and heavily dependent on developments in the United States.
"The general slide in equity prices is also restraining consumption in accordance with the traditional wealth effect," the report said. US citizens owned more shares relatively and were more prone to this, but others felt a knock-on impact.
"The bottom may not have been reached yet."