The OECD released its draft semi-annual Economic Outlook today. It contained few surprises, sticking to the view that "the US slowdown was not heralding a period of worldwide economic weakness" and expecting a 'smooth' rebalancing, "with Europe taking over the baton from the United States in driving OECD growth".
The "benign" central forecast is for OECD economic growth of around 2.7% this year (upwardly revised from last November's 2.5% estimate). This would be a notch below 2006's OECD growth of 3.0%, but impressive nonetheless.
US growth will slow from 3.1% last year to a downwardly revised 2.1% thus year. In his presentation and summary of the report, Chief Economist Jean-Philippe Cotis admitted there were downside risks from the "tricky" situation in the United States, where an over-extended housing market has slowed the economy. The slowdown "may be of a broader nature, and may involve a mild form of stagflation, with weaker trend productivity growth and output growth translating into more overheating".
But the central scenario is for continued robust growth, not for the US to slump and drag down other economies with it. The slowing US economy is expected to be more than offset by upwardly revised growth forecasts for Japan, the UK, Australia and the eurozone - particularly Germany and Italy.
What was new in this report was a heightened concern about inflation. As the Financial Times report by Scheherazade Daneshkhu, OECD warns on risk of higher inflation, says:
Jean-Philippe Cotis, chief economist, said inflation in the US had been “more persistent than expected” while in many other OECD countries, notably continantal Europe and the UK: “The amount of residual economic slack is also uncertain....This constitutes a challenge for central banks which, on both sides of the Atlantic, should probably err on the side of tightness.
...It identified “many signs of strong underlying global inflation pressures which could yet feed through into headline inflation”. These reflected increases in commodity prices and the fact that the inflation rate for intermediate industrial goods in most OECD countries had picked up, a surge in shipping costs over the past year and rises in the price of food relative to other consumer prices across most OECD countries.
The strong demand was also a reflection of robust economic expansion, which the OECD expected to continue. It forecast above-average economic growth this year and next in the OECD area due to upbeat business expectations, consumer confidence and “ongoing buoyancy in emerging market economies and favourable financial conditions.”
For those wanting to read the whole thing, a copy of the entire 253 page report can be found here (PDF).
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