OECD says global economy back on track

Economic momentum on both sides of the Atlantic is now largely back in line with OECD projections, although some of the factors…

Economic momentum on both sides of the Atlantic is now largely back in line with OECD projections, although some of the factors sustaining buoyant growth may not continue to do so.

OECD chief economist Jean-Philippe Cotis said "stretched valuations" in some housing markets were a source of risk, but noted that recent US data pointed to a sharp rebound in the first quarter of 2006.

He said the OECD projected first quarter growth in the United States to be 1.1 per cent, quarter-on-quarter, dipping to 0.9 per cent in the second quarter of the year.

For the euro zone, quarter-on-quarter growth was expected to be 0.6 per cent for the first two quarters.

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"Monetary accommodation has now essentially been removed in the United States. However, with limited if any economic slack left and some pressures on costs, there may be a case for limited further tightening, subject to the incoming data, including the evolution of house prices," Mr Cotis said.

"Japan may be at long last exiting deflation, but only very gradually . . . despite vigorous growth, which argues for keeping the policy interest rate at zero over the near term.

"Further out, removal of monetary accommodation should be based on unambiguous signs that slack is shrinking and that underlying inflation pressures are mounting," Mr Cotis said.