OECD trims Global Growth Forecast

Asian nations, specifically India and China, are the driving force behind the continuing robust growth in global economic activity, the Organization for Economic Cooperation and Development (OECD) said in its semi-annual Economic Outlook, published Tuesday in Paris.

The economy growth will be strong in India and China, the Paris-based group, which has 30 mainly industrialized countries as members, predicted in its twice-yearly economic outlook, while all OECD member countries would show growth of 3.2 percent this year, which is little higher than the previous forecast of 3.1 per cent in May.

"Growth should remain buoyant in China, India and Russia and other emerging economies," the report said.

The organization has raised its growth forecast for the 12 countries that use euro and chopped the U.S. outlook.

It trimmed U.S. growth forecasts to 3.3 percent in 2006 and 2.4 percent next year, from the 3.6 percent and 3.1 percent expansions predicted six months earlier, as its housing market weakens. It sees GDP in the United States recovering to 2.7 per cent in 2008.

U.S. housing stats (number of residential building construction projects that have begun by builders) fell to a six-year low in October, significantly affecting the growth. "All other components of domestic demand remain robust," the report said.

The euro zone's economy has seen a growth by 2.6 per cent this year, falling slightly to 2.2 per cent in 2007 before touching a high of 2.3 per cent in 2008.

The jobless rate for the euro zone will fall sharply next year to 7.4 per cent, from 7.9 per cent in 2006, and then further decline to 7.1 per cent in 2008, while the U.S. unemployment rate is expected to rise as production slows.

According to the OECD, the U.S. benchmark interest rate would fall to 4.75 per cent by the end of 2008.

"The euro zone can actually cope with a temporary downturn in the U.S. if activity stays dynamic in emerging markets, which seems to be the case for the time being," said Gilles Moec, a London-based economist with the Bank of America.

The organization also slashed its 2007 global growth forecast to 2.5 per cent, a rather sharp reduction from the previous prediction of 2.9 per cent and the lowest rate since 2003. However, in year 2008, the rate would grow by 2.7 per cent.

While addressing media in Paris, OECD chief economist Jean-Philippe Cotis said, “We’re not expecting the apple cart to be overturned,” further adding that “Rather than a major slowdown, what the world economy may be facing is a rebalancing of growth.”

The Chinese GDP is expected to expand by 10.6 per cent in 2006, 10.3 per cent next year and 10.7 per cent in 2008. Similarly, India's GDP is expected to grow by 8 per cent in 2006 and 7.5 per cent in 2007.