Global economic growth has gained speed in the last few months and inflation remains under control despite high world oil prices, the Organisation for Economic Co-operation and Development said today.
In a twice-yearly report, the Paris-based OECD said that the European Central Bank should not raise interest rates until late next year to avoid smothering a nascent recovery, stressing that it saw no evidence or prospect of inflation spreading.
The OECD forecast 2.9% growth in 2006 and 2007 after 2.7% this year across its 30 member countries as a whole, with the US economy steaming ahead at 3.5% next year and 3.3% the year after, following 3.6% this year.
Japanese growth is expected to ease off a bit to 2% next year and the year after, from 2.4% this year. The OECD also predicted an acceleration in the 12-nation euro zone to growth of 2.1% next year, after just 1.4% in 2005.
'All in all, global growth has been exceptionally vigorous, fuelling large price increases in oil and commodities markets,' the OECD said. It sees world trade picking up to 9.1% next year and 9.2% in 2007, after 7.3% in 2005 - bringing it back closer to the heady 10% rate of 2004.
The OECD said oil prices and other imbalances such as the US current account deficit continued to pose risks to the global economy but that the doubling of oil prices since 2003 had done less damage than one might have first imagined.
It predicted a few more anti-inflationary rate rises by the US Federal Reserve before a 'plateau' in its key rate next March at 4.75%, while it also said it believed Japan could start tightening monetary policy for the first time in years in 2007.
The OECD's main concern was clearly closer to headquarters in Europe, where the ECB has said it will raise interest rates and is expected by financial markets to do so on Thursday at a meeting of the governing council of the euro-zone central bank.
The OECD report suggested that the ECB should proceed more in the fashion of the US Fed, implementing a gradual series of rate rises worth as much as 1.25 percentage points in all, but starting next September or October when economic recovery can be expected to have taken deeper root.
The OECD said a further oil price acceleration could upset what was a broadly encouraging outlook for the global economy, but that it was for now expecting a modest decline to around $51 a barrel by end-2007 from around $58 in fourth-quarter 2005.
'With price stability being maintained, a powerful impetus arising from the Asian and US economies and the respending of oil exporters' higher revenues, the case for a prolonged world expansion, finally extending to convalescent European economies, looks plausible,' the report says.
According to OECD estmates, the surge in oil prices over the past two years took $350 billion out of the mainy oil-importing economies of the OECD and transferred it to oil-producer states, but much of that money was supporting world growth as demand from the Middle East rose accordingly, the report said.
It also appeared that some of the big profits being made by oil-producing countries was being pumped into buying US government bonds, thus helping to keep long-term interest rates low and supporting global growth.
'While so far the OECD economy looks to have skated through the energy-price shock with relative ease, energy prices are expected to stay high in the years ahead,' the think tank said. Others risks included a US external deficit which absorbs the bulk of the aggregate current account surpluses in the world and is projected to rise further to a record 7% of GDP, or 1.5% of world GDP, in 2007.
Beyond its membership, the OECD said it expected China to keep producing growth rates of 9% a year or more and it said it expected slowing in Russia, where it described plans to cut value-added-tax as particularly ill-advised.
