Strong growth in Europe, Japan seen offsetting US slowdown

May 25 | Updated: May 26 2007, 05:31am hrs
The Organization for Economic Cooperation and Development (OECD) raised its forecast for global growth this year, predicting the economies of Europe and Japan will outpace the US for the first time in 16 years. The economy of the groups 30 members will expand 2.7% this year, stronger than the 2.5% expected in November, the Paris-based group said in its semi-annual economic outlook.

The estimate for 2008 was unchanged at 2.7%. The OECD joins the International Monetary Fund in betting that strong growth in Europe and Japan, along with booming demand in China and India, means the world economy is weathering a US slowdown. The Washington-based IMF, which covers 185 economies, last month left its global growth forecast unchanged at 4.9%, even as it cut its outlook for the US. The current economic situation is in many ways better than what we have experienced in years, said the agencys chief economist, Jean-Philippe Cotis. We have stuck to the rebalancing scenario.

The OECD predicted growth in the US economy will moderate to 2.1% this year, below the 3.3% of last year and the 2.4% expected six months ago, reflecting fallout from a housing-market slump. Its forecasts of growth of 2.7% in the 13-nation euro-area and 2.4% in Japan mean 2007 is set to be the first year since 1991 in which the US grows less than both of its two major economic rivals in the same year. The OECD, founded in 1961 from the organisation formed to administer Marshall Plan aid after World War II, monitors the worlds most developed economies and seeks to coordinate domestic and international policies.

While neither China nor India are members of the OECD, the organization predicted Chinese growth will likely remain above 10% this year and next, while Indias expansion will cool to 8% next year from a forecast 8.5% this year as taxes and interest rates increase. Chinese authorities should pursue a stronger currency and inject more flexibility into the banking system.

Authorities in both China and India are seeking to rein in expansions before they become unsustainable.