OECD optimistic on global growth

The world economy is growing faster than expected, despite increased risks, according to a twice-yearly report from the Organisation for Economic Co-operation and Development.

Global growth of GDP is forecast at 3.1% in 2006, compared with a 2.9% forecast made last November. America is forecast to grow by 3.6% in 2006, Japan by 2.8% and Britain by 2.4%.

The OECD’s Economic Outlook says that previously identified risks to the world economy are becoming more problematic.

Jean-Philippe Cotis, the organisation’s chief economist, argues in the report’s introduction that: “If anything, the risks…have increased as regards current account imbalances, long-term interest rates and house prices, while the inflation and activity outlook could be significantly affected by abrupt changes in oil and commodity prices.”

Cotis also raises the possibility that recent rises in oil and commodity prices could be long term. “There is a risk that we may be facing a more permanent inflation shock, rather than an ephemeral blip, and that earlier rises may not yet have been fully passed through to retail level,” he says.

In its section on America, the Economic Outlook suggests interest rates need to be increased slightly. “The stance of monetary policy, currently near neutral, needs to tighten to keep the economy in balance,” it says.

On Britain, the OECD says it expects inflation to move above the 2% target level in the short term, following the recent spike in domestic gas prices. But in the longer term, it should fall back to its normal level.

The OECD assumes that interest rates in Britain are likely to remain unchanged for the time being. It also draws attention to the fact that Britain’s government deficit has exceeded 3% for three consecutive years.

Meanwhile, America achieved an annualised GDP growth rate of 5.3% in the first quarter of 2006, according to revised Commerce Department figures. The initial estimate was only 4.8%, while growth in the fourth quarter of 2005 was just 1.7%.

The unusually strong growth in early 2006 is widely seen to be partly the result of recovery from the impact of Hurricane Katrina in the latter part of 2005.