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Post-crisis world must avoid ‘trap’ of over-regulating market: OECD

PARIS - The world has been saved from another Great Depression by massive state intervention, the OECD's chief economist said, but he warned of the ‘trap’ of excessive regulation as the debate about global financial reform heats up.

"This is the worst financial crisis in decades, but a repeat of the 1930s Great Depression is highly unlikely, thanks in large part to those massive rescue plans now in place," said Klaus Schmidt-Hebbel.

Big changes are needed in financial and capital markets but governments must avoid the "trap" of a regulatory over-reaction, he said in an interview in the OECD Observer magazine to be published on Monday.

"Excessive regulation can do damage too, by inhibiting future financial innovations, market integration and growth," said the top economist at the Organisation for Economic Co-operation and Development, one of the main forums for international policy-making.

"We require better regulation, not just more regulation," he said in the interview in which he predicted that many of the 30 OECD economies will slip into recession and that recovery from the world economic slowdown will take longer than was the case after previous downturns.

Schmidt-Hebbel's interview previewed the Paris-based OECD's keenly-awaited Economic Outlook report due next month which will examine the impact of the financial crisis on the real economy and ask what lessons can be drawn from it.