Banks: Grim OECD report too rosy

Growth forecasts too high and unemployment outlook too optimistic, say leading bankers

The Organisation for Economic Cooperation and DevelopmentÂ’s (OECD) new prognosis for the Danish economy, and Europe in general, is gloomy. Worse, banks see even darker clouds ahead. Some banks say the OECD is actually underestimating EuropeÂ’s burgeoning debt crisis.

“There is virtually no prospect for growth,” Steen Bocian, Danske Bank’s chief economist, said.

In its World Economic Outlook, the OECD predicts that the Danish economy will grow by 1.1 percent this year and only 0.7 percent in 2012, before rebounding somewhat to 1.4 percent in 2013.

This is significantly lower than the governmentÂ’s own prediction of 1.3 percent growth next year.

Consumer confidence could follow a similar path. The OECD expects consumer spending to drop 0.4 percent this year, before regaining steam and growing 0.6 percent in 2012 and 1.8 percent the following year.

In its report, the OECD forecast the current recovery to come to a halt despite low interest rates and ongoing fiscal stimulus.

“The renewed global slowdown will depress exports and postpone private investment. Uncertainty and worsening labor market conditions will act as a drag on household consumption. As a result, activity is not projected to pick up pace before next spring. With continued slack in the economy, inflation is set to remain subdued,” the OECD wrote.

But Helge J Pedersen, chief economist for Nordea bank, called those predictions “overly optimistic” considering the international tension caused by the current debt crisis.

On the positive side, the OECD expects unemployment in Denmark to drop next year. In the short term, the jobless rate will remain at around 7.2 percent, and then fall to 7 percent in 2013, according to the prognosis.

Bocian, however, thought those prospects were unlikely.

“We’re not convinced that growth of less than 1 percent in 2012 will be enough to stabilise the job market,” he said. “And 1.4 percent growth typically isn’t enough to reduce unemployment. All in all, we share the OECD’s general prognosis for the economy.

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