The global economy is slowing, with key European countries entering a recession that is now having an impact worldwide, the Organization for Economic Cooperation and Development (OECD) says in its latest Interim Economic Assessment.

The Assessment, presented in Paris by Chief Economist Pier Carlo Padoan, says that the G7 economies are expected to grow at an annualised rate of just 0.3% in the third quarter of 2012 and 1.1% in the fourth.

Those rates of expansion are significantly below the 1.8% estimated for the first quarter and in large part thanks to growth in the United States, where economic activity is expected to expand at a 2.4% annualized clip in the last three months of the year.

Thus, Germany's economy is expected to contract at an 0.8% annualized pace in the fourth quarter, while Italy's will do so by 1.4%.

"The slowdown will persist if leaders fail to address the main cause of this deterioration, which is the continuing crisis in the euro area," Padoan said, adding that: "a number of downside risks threaten the outlook, including the potential for further increases to already high oil prices, excessive fiscal contraction, notably in the United States in 2013, and further declines in consumer confidence linked to persistent unemployment."

UK economic activity is now forecast to decline by 0.7%, instead of the 0.5% increase expected before.

To be had in account, the OECD points out that the models used for the US and the UK economies have been modified so as to better capture the influence of developments in the housing sector, with the inclusion of various forward-looking housing indicators.

Lastly, and of interest given that it comes before today's meeting of the European Central Bank's governing council, Padoan believes that the interest rate on the ECB's marginal lending facility ought to be lowered.

AB

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