The growing divergence in economic performance of the world's 30 richest countries needs to be halted, the Organisation for Economic Co-operation and Development (OECD) warned yesterday.

The Paris-based group said convergence needed to be engineered through economic reform. If not, some of the largest economies would no longer have common problems, making it harder to find common solutions.

While some countries, such as the US, Canada and Australia, were performing relatively well, others, including Japan, Germany and the euro zone, lagged behind.

In its twice-yearly economic outlook, the OECD cut its forecasts for euro-zone growth this year sharply while raising its expectations for the US in 2004.

The world economic recovery would be "progressive if unspectacular", having been "unexpectedly protracted" and marked by failing confidence, it said.

"Worries about oil prices, anxieties in the face of war, fear of terrorism and epidemics, loss of confidence in international governance - the list of the so-called geopolitical and psychological factors is long," said Mr Jean-Philippe Cotis, OECD chief economist.

Although a relapse into recession could not be ruled out, it remained improbable. After two years of retrenchment, the global capital overhang had been largely eliminated. US recovery would be driven by a gradual strengthening of investment and modest re-stocking from very low levels.

In the euro zone, private consumption was likely to remain weak and business investment would only gain momentum next year. The forecast for OECD growth this year was reduced to 1.9 per cent from December's expectation of a 2.2 per cent rise. Next year's forecast was held at 3 per cent.

The forecast for euro zone growth this year was cut to 1 per cent from December's 1.8 per cent projection and to 2.4 per cent in 2004 from 2.7 per cent. But the US forecast for 2003 was only trimmed to 2.5 per cent, from 2.6 per cent, while expectations for next year were raised to 4 per cent from 3.6 per cent.

Mr Cotis urged reform of European labour markets to help tackle "a spectacular deterioration" in public finances and to better resist future economic shocks.

"Europe has not shared the boom in North America but we shared completely in the slowdown," he said. The euro zone needed a cut in interest rates of half a percentage point - "the sooner the better".

The forecasts might look more optimistic than recent International Monetary Fund and European Commission projections "but in truth they are disappointing", said Mr Cotis. This was because recovery in demand would not be strong enough to mop up excess capacity.

The end of fighting in Iraq had sharply reduced the risk of an oil price shock. The threats to economic recovery were more diffuse, characterised by a still insecure economic environment, diplomatic friction and loss of confidence in collective government.

The OECD warned that SARS would take a heavy toll on the worst-affected regions of China and Hong Kong.