Author`s name Alex Naumov

European economic growth to exceed US in 2007

Resurgent economies in Europe and Japan will outpace the U.S. to lead global growth this year, while China is expected to maintain its explosive economic expansion, a prominent financial think tank said Thursday.

The Organization for Economic Cooperation and Development lowered its forecasts for the U.S., beset by problems in its housing market, and raised its outlook for Europe.

"The recovery in Europe has been stronger than we expected," OECD Chief Economist Jean-Philippe Cotis said at a news conference. "The slowdown in the U.S. has been more robust than we anticipated."

The OECD sees growth in the 13-nation euro zone and Japan eclipsing the rate in the United States for the first time since 2001, when the world's largest economy entered a brief recession.

The OECD predicts U.S. expansion will slow from 3.3 percent last year to 2.1 percent this year, less than the 2.4 percent it had expected in November. Growth in the euro zone will reach 2.7 percent this year, led by Germany, compared with the previous 2.2 percent forecast. Italy has rebounded more than expected, while France remains a laggard.

The OECD expects the Japanese economy to expand 2.4 percent this year, while growth in China is expected to stay above 10 percent at least through next year.

“Our central forecast is very favorable, with a soft landing in the U.S. and a strong and sustained rebound in Europe, a solid trajectory in Japan and a “bubbly” conjecture in China and India," Cotis said in a preface to the 253-page Economic Outlook, published twice a year. Neither China nor India are OECD members.

Risks to the global economy include "high and volatile" commodity prices, rising government deficits, and imbalances in world trade, the OECD said. Inflation risks are increasing as unemployment falls, the AP reports.

While neither China nor India are members of the OECD, the organization predicted Chinese growth will likely remain above 10 percent this year and next, while India's expansion will cool to 8 percent next year from a forecast 8.5 percent this year as taxes and interest rates increase. Chinese authorities should pursue a stronger currency and inject more flexibility into the banking system, the report said.

Authorities in both China and India are seeking to rein in expansions before they become unsustainable. Former Federal Reserve Chairman Alan Greenspan said yesterday that he was concerned Chinese stocks might undergo a ``dramatic contraction'' after its main stock index jumped more than 90 percent this year.

Russia will grow 6.5 percent this year before slowing to 5.8 percent next year, while Brazil is ``gaining momentum'' and will expand 4.4 percent this year and 4.5 percent in 2008 after 3.7 percent last year, the OECD predicted, Bloomberg reports.

Risks to the global economic outlook include “high and volatile” commodity prices, a reassessment of risk in financial markets, a reversal of government efforts to close budget deficits and ongoing imbalances in world trade. The threat of higher prices has also increased with unemployment falling below non-inflationary rates in half of the OECD countries, it said.

Source: agencies

Prepared by Alexander Timoshik