OECD lowers 2005 global economic growth forecast

OECD lowers 2005 global economic growth forecast

The Organization for Economic Cooperation and Development (OECD) has issued its semi-annual Economic Outlook report. Accordingly, OECD lowered its forecast for global economic growth next year on the back of rising oil prices, which slow down global trade and consumer confidence. Paris-based organization with 30 member countries cut its estimate of growth next year from 3.3% to 2.9%. This year, the economy is expected to grow by 3.6% compared with the previous forecast of 3.4%. Economic growth in Europe and Japan slowed down in the third quarter and the US economy, the world's largest, grew by 3.7%, which was slower than expected. The OECD also said that interest rates can be gradually raised over the next two years. The US Federal Reserve may raise interest by a quarter of a percentage point every quarter from now on and UK may raise interest rates by 1 percentage point over the next year. Even in Japan and Euro zone, the OECD expects rates to begin to edge up in 2006. OECD expects the US economy to expand by 4.4% this year and to grow by 3.3% next year. The economy is expected to keep growing, but sustained increases in energy prices, weakness in the labour market or a sharper than projected rise in long-term interest rates pose downside risks. The organization raised its 2004 growth forecast for the Euro zone to 1.8% from 1.6%, but reduced its prediction for 2005 to 1.9% from 2.4%. The economic recovery is frustrated by high oil prices and the recent appreciation of the euro. Japan's economic expansion remains on track and the world's second-largest economy is expected to grow by around 2.25% in both 2005 and 2006. Despite a slowdown in export growth, domestic demand is likely to expand due to rising corporate profits and improvements in labour conditions. The OECD also said that the economic recovery will bring an end to deflation. Germany's economic recovery may broaden in the coming years as rising employment spurs spending and strengthening export-led growth in Europe's largest economy. Economic growth is projected to be 1.2% in 2005 and 2.1% in 2006.