Report: Major Economies Headed for Slowdown

Top European economic evaluator forecasts near-term deceleration on a global scale.

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A top European economic think tank said today the world's largest economies—and several large developing ones—are heading for anemic growth and continued fiscal malaise.

According to the Paris-based Organization for Economic Cooperation and Development, the so-called "Composite Leading Indicator" score for all of the 34 countries in its membership dropped by four-tenths of a point—indicating slower growth than previously forecasted.

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The OECD's Composite Leading Indicator sets a score of 100 as the long-term average trend for a given country's economic activity. Changes in direction for the indicator show turning points in an economy, and can indicate a shift from a growing economy to a declining one.

Of the organization's "major seven" countries, including Canada, France, Japan, Germany, Italy, the U.K., and the U.S., only two—the United States and Japan—sat above 100 in September, at 101.6 and 101.2, respectively. Italy is lowest of the seven, at 97.5, and also posted the biggest annual percentage drop of 5.9 points.

In addition, of the so-called "BRIC" (Brazil, Russia, India, and China) countries, only Russia is over 100, with 102.4. Both Brazil and India dropped by 7.7 percentage points over the last year.

The CLI fell for all four BRICs and all "major seven" countries in September, indicating that all are headed for slowdowns.

This does not necessarily mean that these countries are headed for negative growth, but it could mean that they are losing their economic momentum, experts say.

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It's important to remember that this is only a snapshot in time, says Nadim Ahmad, Head of the National Accounts Section at the OECD. These countries could conceivably turn their economies around in the next six months, he adds.

"Of course, if policy measures are implemented after the CLI has been put in place, for example if you see a large injection of cash injected into an economy that's intended to boost the economy in a sort of Keynesian way, then of course we will have to change our assessment," he says.

But reports indicate cash-strapped countries poised on the brink of austerity measures, like Italy and France, appear unlikely to put such policies in place.

Countries in the OECD foresee a difficult slog back to recovery. Indeed, officials in Germany, the European Union's largest economy, now also predict dark days ahead, with economic growth forecasted below 1 percent next year, down from this year's 3 percent.

Experts see this slowdown as a potential symptom of globalization—a drag on one country's economy is now a drag on many countries.

"Basically what you're seeing here in many of the countries is a contagion effect—all of these countries are very connected in terms of their production processes, and the spillover from one will hit another," says Ahmad.

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