Brussels, 06/09/2005 (Agence Europe) - During presentation of intermediary figures on the economic prospects of OECD member nations' economies, Jean-Philippe Cotis, Chief Economist at the OECD, above all placed emphasis on the impact that Hurricane Katrina and high oil prices would have. It is above all important for the euro zone which is at the “beginning of recovery after a long series of stalled recoveries”, he explained in Paris on Tuesday.
Hurricane Katrina may have dealt a harsh blow to the US and world economy, Mr Cotis stressed, explaining that the oil production capacity temporarily lost in the Gulf of Mexico corresponded to the surplus capacity margin on the global market. The latter might therefore be “very stretched”, Mr Cotis says, recalling that, according to current studies by American economists, the fall in activity during the second half of the year in the United States could reach one quarter to one half of a point of GDP and have considerable consequences on inflation and household consumption. Releasing crude oil from strategic reserves could thus help to calm the market the time it takes to reconstitute production facilities, he stressed. With a rise of around 15 dollars since early May, the price of a barrel of crude was around 65 dollars on Tuesday. Thus, prices are not very far from those notched up at the end of the seventies, which, on one hand, entail mechanical effects (reducing purchase power) and, on the other, entail the cost of uncertainty weighing on the climate of confidence, Mr Cotis said. This comes as a “major shock” and nothing indicates that it has come to an end, the economist said, foreseeing “negative impact on investment and capital goods spending”.
According to forecasts before the disaster, the OECD predicted 3.6% growth of American GDP for 2005, with 0.9% increases during the next quarters. According to Mr Cotis, the Federal Reserve should continue to come down toward a neutral rate but perhaps in a more measured way than it does at present. Still on the basis of figures that do not take into account the impact of Hurricane Katrina, the OECD predicted annual growth of 1.3% in the euro zone (compared to 1.2% at an earlier date), ranging from 0.4% during the third quarter and 0.5% during the last quarter. France and Germany would be the main beneficiaries but the question of transition from the current export-driven growth to growth supported by final domestic demand remains problematical. According to Mr Cotis, there are no signs that this mechanism is in motion. He feels that the very strong rise in orders for German investors in their country is an encouraging sign, still to be confirmed. He went on to add that, although one should not be too pessimistic, Europe is indeed somewhat vulnerable in this context. He considered that the time for monetary tightening in Europe has not come and that the European Central Bank (ECB) should continue to adopt a “very accommodating position”. The OECD has, on the other hand, lowered its forecasts for the United Kingdom from 2.4% to 1.9%, considering that the Bank of England should reduce its rates. Japanese growth could rise to 1.8% (compared to 1.2% previously) and seems able to stand up to the changes in oil prices.