Soaring oil prices dealt a blow to global economic growth in recent months after a bumper period of international trade, but higher corporate profits and investment should facilitate a rebound in 2005, the OECD said today.
OECD chief economist Mr Jean-Philippe Cotis
In a twice-yearly report, the Paris-based Organisation for Economic Cooperation and Development cut growth forecasts for the main industrialised regions and said continental Europe was merely "plodding along".
It predicted US growth of 4.4 per cent this year and scaled its forecast for next year to 3.3 from 3.7 per cent . It also cut its Japanese growth forecasts to 4 from 4.4 this year and 2.1 from 2.8 for 2005.
The OECD forecast growth of 3.6 per cent this year for the 30 countries of the OECD - a club that includes all the industrial powers plus emerging market economies such as Turkey and Mexico - and 2.9 in 2005 before a recovery to 3.1 in 2006.
That compared with OECD-area growth of just 1.1 per cent in 2001 at the nadir of the most recent economic slump and the OECD predicted a return to this year's record world trade growth of 9.5 per cent in 2006 after a dip next year to 9 per cent.
It reserved the worst for the euro zone, marked above all by depressed German household expenditure, trimming its already low growth forecasts for the 12-nation bloc to 1.8 per cent this year and 1.9 per cent next, from previous forecasts of 2.0 and 2.4.
"There are nonetheless good reasons to believe that despite recent oil price turbulence the world economy will regain momentum in a not-too-distant future," OECD chief economist Mr Jean-Philippe Cotis said in an introduction to the report.
Most of the OECD's growth forecasts were relatively close to those recently issued by the Washington-based International Monetary Fund.
China's dynamism and a "spectacular comeback" in Japan that had albeit faltered in recent months would help world recovery, the OECD said.
"Supported by strong balance sheets and high profits, the recovery of business investment should continue in North America and start in earnest in Europe," it said.
The ECB , which was until a few months ago expected to follow the Federal Reserve and start raising interest rates after a prolonged period of historically cheap credit, should hold off until perhaps 2006, the OECD said.
The OECD predicts a US current account deficit this year worth 5.7 per cent of gross domestic product, rising to 6.2 per cent in 2005 and 6.4 per cent the year after.
Mr Cotis said the world could and would have to learn to live with more expensive oil due to soaring demand from booming emerging market economies such as China, where it expects economic growth of 8.0 per cent next year after 9.2 this year.
Levels of $40 a barrel could be sustained but the $50 per barrel seen recently - 50 per cent higher than at the start of this year - could do more lasting damage, he said.
The OECD noted that growth was progressing healthily in other parts of the globe, with South America expected to grow by 4 per cent in 2004 as domestic consumer spending and investment take over form exports as major growth generators.