21 November 2001
The world has plunged into recession for the first time in two decades in the wake of the 11 September attacks that delivered a "severe shock" to the global economy, an international body said yesterday.
The Organisation for Economic Co-operation and Development said its 30-nation zone would contract "slightly" in the second half of this year and was forecast to stay weak into 2002.
In its bi-annual economic outlook the organisation said output would fall 0.3 per cent in the second half of 2001, the first drop for 20 years. Growth would probably come in at 1.0 per cent both this year and in 2002, marking the worst performance since the Second World War. However, the pace of recovery would pick up next year, it said, with a strong rebound late in 2002 paving the way for 3.2 per cent growth in 2003.
"The downward risks are substantial," it said. "A variety of adverse events could occur ... which would tend to aggravate present weakness and cast doubt on a speedy and robust rebound."
Britain was forecast to be one of the fastest-growing countries within the OECD, with GDP growth of 2.3 and 1.7 per cent this year and next. It said the UK would slow "noticeably" in the early months of next year as domestic and overseas demand faltered in the wake of 11 September.
It warned that the Bank of England, which has already cut interest rates by 2 percentage points this year, might have to act again.
But it praised the Government for setting up a "sound fiscal position" and applauded its plans to hike spending on transport, health and education.
"It provides the necessary room for manoeuvre to address long-standing problems, most prominently the poor quality of public infrastructure and key public services," it said. The report came as the latest public finance figures showed Whitehall was finally managing to spend the Chancellor's cash mountain.
According to the last data release before next Tuesday's Pre-Budget Report, spending by government departments jumped 21 per cent or £5bn in October compared with a year earlier.
In the first seven months of the current financial year spending has risen by almost 10 per cent while the money pouring into the Treasury's coffers has only risen 3.7 per cent.
This translated into an overall surplus of £3.2bn compared with £9.3bn at the same point a year ago and a target for the year to March 2002 of £6bn.
The figures were worse than had been expected in the City. Analysts said the trend was starting to deteriorate as spending outstripped tax revenues.
Ross Walker, an economist at Royal Bank of Scotland, said the Chancellor would still hit his target. "The public finances remain in reasonable shape," he said.
Meanwhile, there was little sign of a sharp fall in consumer spending, which formed a central plank of the OECD forecast.
The British Bankers' Association said mortgage lending rebounded sharply last month, rising by £4bn just below August's all-time peak of £4.1bn. Peter Vipond, its head of research, said: "Rate cuts no doubt bolstered demand for mortgages but there is a continuing picture of resilient consumer demand."
Separate figures gave a glimmer of hope of a recovery for the UK's beleaguered export sector. Overseas sales of goods to countries outside the European Union surged by 15 per cent on October, official data showed. This helped the non-EU goods deficit narrow to a 20-month low of £1.7bn. Meanwhile, the overall trade gap for goods and services shrank in September, dropping from £2.3bn to £1.1bn, the largest one-month fall since records began in 1697.