World economy rising

Global economic growth is speeding up and has spread to weak spots such as Japan and Europe without sparking a surge in inflation so far, the OECD has said.
Chief Economist Jean-Philippe Cotis voiced concern, however, over high oil and commodity prices, which the OECD said were likely to stay high because of strong Asian demand despite a sell-off in markets in recent days.
Growth in the 30 mostly industrialised economies of the OECD is forecast to expand 3.1 percent overall this year, up from 2.8 percent in 2005, the Organisation for Economic Cooperation and Development said in its Economic Outlook, a twice-yearly report.
“The ongoing expansion is entering its fifth year,” it said.
“Notwithstanding the headwinds from high and volatile energy prices, it is projected to continue and even broaden this year and next.”
That echoed the International Monetary Fund, which in March forecast worldwide economic growth of 4.9 percent in 2006, the best in 30 years barring an exceptional year in 2004.
Like the IMF, the Paris-based OECD said that current account imbalances — surpluses in China and Japan and deficits in the United States — posed a continuing and perhaps mounting threat.
“A brutal unfolding of such imbalances would hurt the world economy,” chief economist Jean-Philippe Cotis said. The OECD forecast US growth of 3.6 percent in 2006 and 3.1 percent in 2007 after 3.5 percent in 2005.
For the euro zone, it predicted GDP growth of 2.2 percent this year and 2.1 percent in 2007 after 1.4 percent this year. For Japan it forecast 2.8 percent growth this year and 2.2 percent in 2007, from 2.7 percent in 2005.
The OECD made a first attempt to quantify how globalisation and cheap Chinese and broader Asian exports affect prices and it reported a greater inflation-limiting impact in Europe than in the United States.
From 2001 to 2005, imports from China and other Asian countries knocked the US rate of inflation down by 0.1 percentage points each year, and trimmed Europe’s inflation rate by nearly 0.3 percentage points a year. Chinese exports have risen four-fold in 15 years.
But Cotis said it remained to be seen whether this benefit was not more than offset by insatiable demand for oil, metals and other commodities in China and other rapidly developing economies of Asia, and the resulting upward pressure on prices.
“Experience over the past three years suggests commodity price pressures may significantly outweigh the disinflationary influence of low-cost manufacturing imports,” Cotis said.
The OECD report, which assumes oil prices will stay around US$70 a barrel this year and next, predicted a rise in the overall inflation rate for the OECD region to 2.2 percent this year but a retreat the year after to 2.0 percent, where it stood in 2005.
The OECD report, however, did voice concern about what the organisation sees as more serious risks for the longer term.
It said a risk of housing market downturns had become more pronounced in the United States, France and Spain but depended partly on future interest rate developments.It echoed the view that monetary policy was getting more restrictive after years of super-cheap lending but said it would be unwise to rush into more rate rises in the 12-nation euro zone, and that the Japanese central bank should not raise rates until next year.
The OECD predicted a further quarter-point rise in the key US policy rate to 5.25 percent, then a pause followed by a possible cut of the same size a year from now.
“A light ‘tap on the brakes’ seems necessary to keep the economy in balance,” the OECD said.