Sub-prime crisis to cost $300 billion

Thursday, 22 November 2007 12:00

The US sub crisis will cause international losses of $300 billion (£145 billion).

The Organisation for Economic Cooperation and Development (OECD) claims the knock-on effect of the sub-prime crisis, and the liquidity crunch, will lead to falls on stock markets across the world - with the worst still to come.

The OECD Financial Market Trends states: "It may well be that the recent correction is only a precursor of a more protracted downturn."

The declines in the equity markets over July and August, described as not "very pronounced by historical standards", has since been reversed by gains September and October.

The FTSE 100 fell from a high of 6,393 to 5,858 points in August, but by October it stood at 6,721 points.

However, this brief fillip is expected to be reversed with greater falls, the OECD predicts.

The sub-prime crisis - where levels of defaulting by US high-risk borrowers on their mortgages has increased massively stinging financial institutions investing in the loans - is now expected to hit global economic growth.

"Previous assertions by forecasters that the sub-prime crisis would not have substantial effects on the US or even the global economy have by now been mostly withdrawn, and more recent economic news points towards a more protracted economic adjustment," the report states.

"Most forecasters have revised their estimates downwards, and a recession in the US is now seen as more likely than before by some observers."

Yesterday the FTSE closed down 2.5 per cent to reach the lowest level since mid-August - held down by fears the credit crunch would bite the wider economy. The index is down around ten per cent this month.

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