The US economy is on the brink of recession, with growth grinding to a halt because of what will probably be America’s worst housing slump on record, the Organisation for Economic Cooperation and Development (OECD) said yesterday.

In the latest cuts to its forecasts of US prospects, the OECD predicted that American economic growth would be close to zero in the present quarter and the next, taking it to the edge of the two consecutive quarters of decline that define a technical recession. However, the Paris-based club of the world’s rich economies said that it might still “be premature to declare a recession”, although few economists have much doubt that the US is already in such a state.

The OECD’s assessment came as a New York-based forecasting group, the Economic Cycle Research Institute, said that its latest leading index of future American conditions showed that the world’s biggest economy was “unambiguously” in recession.

Last night, a leaked draft of the International Monetary Fund’s twice-yearly World Economic Outlook, due out in mid-April, showed that it also believes that the US economy “remains very weak, certainly close to a possible recession”. Despite the dollar’s recent steep losses, the draft also suggested that the IMF saw its present value as still “rather strong”.

The OECD estimates that American GDP will grow by 0.1 per cent in the present quarter and then stagnate, with zero growth, in the following three months. Over 2008 as a whole, the think-tank cut forecast US growth to a scant 1.4 per cent, down from the 2.0 per cent it previously expected to the weakest performance since 2001, during the previous recession.

For the first two quarters of the year, Jørgen Elmeskov, the acting chief economist of the OECD, said that it was clear that the US economy was “going to be very weak”. He said: “Nobody can say for sure whether the outcome is going to be just north or just south of zero, and the point is, also, it doesn’t matter. This is going to feel bad anyway.”

The deepening US housing slump, and its impact in undercutting the important American construction sector, continued to drag growth downwards, the OECD said. Mr Elmeskov said that should residential construction spending continue to slide at the pace of the past 18 months, the housing downturn would be the worst for four decades or more. He said: “There seems to be a very high risk we will be in such a scenario.”

Amid deepening gloom over the global outlook, the OECD offered a brighter assessment of prospects in Britain and the eurozone. It left its forecast for eurozone growth unchanged at 1.5 per cent for 2008 and slightly raised its first-quarter forecast to 0.5 per cent, with this set to ease to 0.4 per cent in the following three months.

In Europe “the sky’s not falling in”, Mr Elmeskov said. German growth was tipped to remain at a robust 0.6 per cent in the first quarter and to slow to 0.4 per cent in the second quarter. In France, both quarters were projected to grow by 0.4 per cent, and in the UK, the economy was seen as expanding by a still-strong 0.6 per cent in the first two quarters, marking an upgrade to the OECD’s previous view. The think-tank sounded an alarm, however, over inflationary pressures on both sides of the Atlantic, calling on the European Central Bank (ECB) to resist political pressure to cut interest rates. The strength of the euro, at record highs against the dollar, was doing a significant part of the ECB’s inflation-fighting job for it, the OECD said.

Mr Elmeskov was surprised at the strength of OECD forecasts for British growth and urged the Bank of England to move cautiously over further cuts in interest rates.

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