By JAMES KANTER
September 6, 2007
SourcePARIS, Sept. 5 — The European Central Bank said Wednesday that volatility in credit markets appeared to be returning after a brief period of stability, and a leading group of advanced economic nations warned of “ominous” new risks to the global economic outlook.
The instability in money markets that worried the central bank pushed European stock markets down nearly 2 percent, breaking a five-session run of advances.
The Bank of England offered extra funds to banks on Wednesday, its first attempt to lower the cost of credit, and the European bank said it stood ready to do the same should conditions worsen by Thursday, the day the bank is expected to announce that it will keep borrowing costs stable.
The Organization for Economic Cooperation and Development, a Paris-based group of 30 industrial nations, issued a report warning that the credit crisis had dimmed prospects for economic growth, especially in the United States.
It scaled back its growth forecasts for many leading economies and urged central banks to keep interest rates stable and low to stem further damage. And it recommended that the Federal Reserve consider trimming its benchmark interest rate by a quarter of a percentage point when it meets on Sept. 18.
“You cannot rule out a recession” in the United States, said Jean-Philippe Cotis, the O.E.C.D.’s chief economist.
Until last week, the European Central Bank had signaled that it would lift borrowing costs for the 13 countries that use the euro, after injecting billions in emergency funds into money markets in mid-August.
Central banks in Canada and Australia held rates steady on Wednesday.
Another report Wednesday warned that China, India and other developing economies needed to protect themselves against the possibility of a sharp slowdown in the United States.
The United Nations Conference on Trade and Development said global economic growth would slow to 3.4 percent this year, from 4 percent last year. Reuters reported that it warned of the possibility that an “outright contraction” in American housing prices could stifle consumer demand, hurting developing countries whose exports to the United States had fueled their growth.
The O.E.C.D. said there was considerable uncertainty whether the turmoil in the financial markets had fully run its course.
Mr. Cotis said in an interview that the picture should be clearer by November, with economists better able by then to measure the impact of the crisis fully.
The organization lowered its forecast for American economic growth this year to 1.9 percent, from 2.1 percent. It trimmed its outlook for the euro area to 2.6 percent, from 2.7 percent, but kept growth projections for Japan at 2.4 percent.
On an optimistic note, Mr. Cotis emphasized the resilience so far of American labor markets. That, he said, could help keep household consumption strong and the economy from sinking into recession.
Many American companies are already operating with lean staffs, Mr. Cotis said, and executives would have to think carefully before pruning numbers further because they could find it costly to rehire workers if the economic outlook improved.