It’s Official: Financial Crisis Status Downgraded to Turmoil
It’s nice to see that we now seem to be back to mere financial turmoil rather than a full blown crisis, judging by the OECD’s indicators of financial market stress.
The OECD’s indicators for bank credit default swap rates and the three-month Treasury eurodollar spread rate have both declined from the crisis peak from mid-September to mid-October and are closer to the “turmoil” rates experienced from August 2007 to mid-September. However, they remain several times higher than the “routine” rates that prevailed prior to August 2007.
The one worrying sign is that the three-month EURIBOR-EONIA swap index spread indicator stands at 162, up from 118 during the peak of the crisis, from 62 during the turmoil period and only 6 under routine conditions.
In a preview of its Economic Outlook, the OECD says economic activity is expected to fall by 0.9 percent in the US next year, by 0.5 percent in the Euro area and by 0.1 percent in Japan as OECD countries enter a protracted slowdown.
Presenting OECD’s gross domestic product (GDP), inflation and unemployment forecasts for these three major economies ahead of the G20 summit, Jorgen Elmeskov, Director of Policy Studies in the OECD’s Economics Department, said a high degree of uncertainty surrounds the outlook. Much depends on the depth and duration of the financial crisis, the main driver of the current recession.
The ongoing adjustment in housing markets still has a long way to go.
GDP for the OECD countries as a whole is expected to fall 0.3 percent year-on-year in 2009 before recovering slightly to grow by 1.5 percent in 2010. The average unemployment rate in the OECD area, estimated at 5.9 percent this year, is forecast to climb to 6.9 percent next year and reach 7.2 percent in 2010. Inflation should continue to ease as economic slack puts downward pressure on prices and if, as assumed, commodity prices maintain their recent lower levels. “Against this backdrop, additional macroeconomic stimulus is needed,” said Elmeskov.
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