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Doesn't that strike you as an anomaly? As if the US economy was from another planet?
OECD warns of threats to economic recovery
By Scheherazade Daneshkhu and Anna Fifield
Published: May 11 2004 10:26 | Last Updated: May 11 2004 10:26
Eurozone interest rates need to be cut by half a percentage point to stimulate recovery, the Organisation for Economic Co-Operation and Development signalled on Tuesday.
In its twice-yearly assessment of the world economy, the OECD cut its growth forecasts for the euro area, which it said had failed to meet even its low expectations of six months ago. By contrast, the group of the world's 30 richest countries upgraded its forecasts for the US, Japan and the OECD as a whole.
"The recovery is still, to a large extent, bypassing continental Europe, where domestic demand and household expenditure remain surprisingly weak," it said.
Jean-Philippe Cotis, the OECD's chief economist, said: "It’s the strength of the rising tide of the world economy which will lift the euro boat; there is no internal momentum."
While stopping short of calling on the European Central bank to cut rates, the OECD said it assumed the main refinancing rate would be cut by half a percentage point "in spring 2004, against the backdrop of inflation falling below 2 per cent and weaker-than-expected economic activity".
The ECB last week left the refinancing rate at 2 per cent for the 11th consecutive month. By contrast, the OECD expects the US to start raising interest rates this summer as it spearheaded a global recovery driven by a rebound in business investment and high-technology spending.
It raised its forecast for growth across the OECD from November's 3 per cent forecast to 3.4 per cent this year, its highest level since 2000. It also raised its growth forecast for the US, to 4.7 per cent, from November's 4.2 per cent estimate.
The world economy was on course for a "strong and sustainable" recovery, led by the US, Japan and the UK. World trade growth would almost double this year to 8.6 per cent from last year's 4.5 per cent and accelerate further to 10.2 per cent in 2005.
But the OECD said differing speeds of growth threatened that recovery. "Such cumulative divergences would in turn worsen current account imbalances and financial uncertainties," it said.
There was "an urgent need for large continental European countries to better understand why they have been under-performing in comparison with other OECD economies and to take the necessary steps to overcome this deficiency".
It singled out Germany and Italy as the main laggards and cut its growth forecasts for both countries this year.
The weakness of the eurozone recovery appears to be damping chief executives' optimism, particularly in Europe, according to a survey by Goldman Sachs, the investment bank.
The survey readings have deteriorated markedly over the past three months as eurozone data continue to disappoint and an interest rate rise in the US draws nearer.
The measure of European chief executives' optimism about the general business outlook plummeted from 93.8 in February to 75.9 this month, while in the US it softened from 94.1 to 90. |
