OECD slashes UK’s economic growth outlook

Ben Southwood
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THE WORSENING euro crisis has put the brakes on worldwide growth, said the OECD in a global economic analysis out yesterday, as it cut forecasts across the board.

UK policymakers will be unhappy with the massive hit to projected UK GDP – the economy is now predicted to shrink 0.7 per cent – well under the 0.4 per cent expansion forecasted previously.

Though the UK’s forecast cut the most of all top economies, chancellor George Osborne will be buoyed by the arguments of some analysts that the forecast is overly pessimistic.

“We believe the OECD overstates the economic weakness we are likely to see in the second half of the year,” said Chris Williamson at Markit, talking about the UK.

“The prediction that the UK economy will shrink at an annualised rate of 0.7 per cent in the third quarter does not account for the shift in activity between the second and third quarters due to the Queen’s Jubilee,” Williamson argued.

“The extra public holiday is estimated to have hit second quarter GDP by as much as 0.5 per cent,” he explained.

And he went on to warn that the noted decision not to consider the effects of the Olympics in their predictions is yet another reason they should be taken with a pinch of salt.

And chancellor Osborne will also feel vindicated by the report’s contention that economic problems are global, not just national, supporting claims he has been making for years.

France will now only grow 0.1 per cent over 2012, the OECD predicts, while Germany’s economy will expand a modest 0.8 per cent. The Eurozone’s third biggest economy, crisis-hit Italy, had its forecast slashed 0.7 per cent – now its economy is predicted to shrink 2.4 per cent.

But North America and Japan are bucking the global slowdown. The US is expected to grow 2.3 per cent, down only slightly from the 2.4 per cent originally suggested, and Japan’s forecast actually went up 0.2 per cent to 2.2 per cent.