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US political deadlock threatens world economy: OECD

Update: October, 10/2013 - 11:48

WASHINGTON – Failure to raise the US borrowing ceiling due to political deadlock could force most of the leading industrial democracies into recession, the Organisation for Economic Co-operation and Development has said.

Nine days into a partial shutdown of the US government, the OECD, which groups 34 leading developed powers, said that Washington's paralysis over the budget and debt cap threatens the stability of the entire global economy.

"The current political deadlock in the United States is needlessly putting at risk the stability and growth not only of the US but also the world economy," the organisation said in a statement on Wednesday.

"As the government shutdown drags on, the level of concern is ratcheting up," it said.

If the debt ceiling is not raised, it added, "our calculations suggest that the OECD region as a whole will be pushed back into recession next year, and emerging economies will experience a sharp slowdown."

"The magnitude of further possible negative feedback effects can only be guessed at."

Warnings from around the world over Washington's budget turmoil have grown in the past week, as Democrats and Republicans remained deeply divided on how to fund the government for fiscal 2014, which began October 1 without a budget in place.

Meanwhile the government faces a cash crisis as early as October 17, when the Treasury says it could be forced to default on obligations because it lacks the power to borrow further to cover a chronic deficit.

While the Treasury remains mum on which bills it might not pay, some worry that it could default on its debts.

The OECD forecast that failure to raise the debt ceiling, now at $16.7 trillion, would force a contraction in government spending that would cut 4 percentage points from US economic growth – currently running at about 2 per cent annually.

"A default on government debt would result in an even more serious outcome," the OECD said.

"We trust in the wisdom of US political leaders to raise the debt ceiling and ensure the normal operation of the US government." AFP

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