OECD revises world growth forecast
Posted at 12:15 p.m. PST Monday, December 15, 1997
PARIS (AP) -- The recent financial turbulence in east Asia has forced
the OECD to twice revise its forecast of world growth for 1998.
On the same day the think tank published its semiannual economic
survey putting 1998 growth at 3.0 percent -- down from an earlier
forecast of 3.8 percent -- it told an afternoon news conference that
potential for growth next year is now more like 2.5 percent.
The Organization for Economic Cooperation and Development, a
Paris-based economics group representing mostly Western
industrialized countries, explained that its official economic survey was
based on estimates compiled by Nov. 10.
Those included the impact of the financial instability in southeast Asia,
but not the effects of the crisis in South Korea and fresh banking
problems in Japan.
Chief economist Ignazio Visco said the volatility of financial markets in
east Asia makes it difficult to forecast exactly how world economic
growth will be affected in 1998. However, the OECD believes the
region's troubles will leave less room for U.S. and European Union
monetary authorities to raise interest rates next year.
Visco believes the U.S. Federal Reserve likely will adopt a
wait-and-see attitude before raising interest rates in 1998.
He said the intensification of problems in southeast Asia, South Korea's
crisis and the banking problems in Japan have ''substantially clouded
the outlook'' for world growth and increased the risks of spillover
effects to other economies.
In its report released Monday, the OECD said the east Asia problems
had the potential of reducing growth in industrialized nations by nearly 1
percent. The further revision late Monday increased that figure,
although the OECD has not had the time to determine exactly what that
figure is.
Visco said the impact of east Asia's troubles will be small on Europe's
economies, because of the limited trade flow between the two regions.
European growth may be curbed by 0.1 to 0.2 percentage points in
1998, he said.
The OECD has a gloomy outlook for the South Korean economy,
where growth might fall to as low as 2 percent next year, Visco said.
He said it was essential for the Japanese government to make public
funds available to the banking sector to prevent its collapse, while fiscal
consolidation should also be at the top of the government's agenda.
''Overall, we are quite worried about Japan,'' Visco said.
The OECD is now likely to revise its country forecasts in Monday's
semiannual world report. In that report, the OECD cut its forecast for
1998 growth in Japan's GDP to 1.7 percent from a previous forecast of
2.3 percent. It put U.S. growth at 2.7 percent in 1998 and EU growth
at 2.8 percent in 1998.
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