A report released today by the Organization for Economic Cooperation and Development (OECD) says that it has reduced its expectations for economic growth in 2005.
The OECD reduced its economic growth forecast for the industrialized world to 2.6% from 2.9%. It did raise its growth forecast for the U.S. from 3.3% to 3.6%. The OECD said that interest rates in the United States will go up in order to keep inflation pressure at bay, but Europe needs a “rapid rate cut”.
The OECD cut its growth outlook for the Euro-area, from 1.9% to 1.2%. It also cut its growth outlook for Japan. It now expects 1.5% as opposed to its previous 2.1% estimate. Reuters reports:
It (the OECD) said Japan should stick to ultra-easy monetary policy in the face of persistent mild deflation pressures and that UK interest rates had risen far enough given that growth was slowing.
The OECD had particularly strong words for the European Central Bank.
“With domestic demand sluggish, resilience feeble and possible upward pressures on the euro looming ahead, the balance of risks on growth and inflation is clearly tilted to the downside, calling for an early easing of monetary policy,” the OECD said.
“An interest rate cut … would not be in the service of the credibility of the euro system or the inflation expectations of actors in the financial markets,” said ECB Governing Council member Klaus Liebscher.
The ECB is not expected to cut its rates. It has kept them the same for the last two years even while the region’s economy has suffered. The current main refinancing rate is 2.0%.
Chris is a staff writer for Murdok. Visit Murdok for the latest ebusiness news.
