The Organization for Economic Cooperation and Development said the current financial market turmoil has undermined prospects for global economic growth. “Downside risks have become more ominous in a context where overall financial market conditions are likely to remain durably tighter,” it said. The organisation cut its 2007 growth forecast for the US to 1.9% from 2.1% in May but admitted its estimates may err on the upside as it was too early to assess how badly financial market volatility would cripple world economic growth. “In any event, consumer resilience will be tested by mortgage rate resets, tighter credit standards, weaker collaterals and slower job creation,” it said. As a result, the OECD said the US Federal Reserve should consider cutting its key interest rate.
Nigeria announced details of its draft 2008 budget. It assumes a benchmark oil price of $53.8 per barrel, resulting in a deficit of 1.6% of GDP. The benchmark price in 2007 was $40.0 per barrel, but after consultations with the IMF, this new ‘more realistic’ price based on a three-year moving average of oil prices has been adopted. Analysts say this benchmark is significant as it stops pro-cyclical fiscal spending in response to fluctuating oil prices. The draft budget also projects spending of 12.5% of GDP, implying a small decrease over 2007 expenditure once a 15% public sector pay rise is approved. (For an exclusive interview with Nigeria’s president pledging economic reforms and macroeconomic stability, please click here)
Sri Lanka will delay its first overseas bond issuance as a result of the current market unrest, fund managers have said. A $500 million issue was on the cards and lead mangers in India were already mandated. The central bank has raised the benchmark rate to 10.5% in order to curb inflation, pushing up the cost of domestic financing. This cancellation will set back the government’s efforts to secure infrastructure financing to revive its ailing economy. (For an interview with Sri Lanka’s investment minister on the country’s economic prospects in view of the ongoing civil war, please click here)
Mattel, the world's largest toymaker, announced its third recall in five weeks after finding 848,000 Chinese-made toys were poisonous. Chinese officials have pledged to increase quality controls, but have argued that the vast majority of the nation’s exports are safe. Analysts say these recalls have badly damaged China’s manufacturing reputation. (For more on China’s export performance, click here)