Global economic recovery seen gathering speed

/ Source: The Associated Press

Global economic growth is poised to gain momentum, the Organization for Economic Cooperation and Development said Thursday.

"The global recovery has been marking time, as the adverse effects of higher and more volatile oil prices worked their way through," OECD Chief Economist Jean-Philippe Cotis said in a text posted on the group's Web site.

"Going forward, however, the conditions are in place for the global recovery to pick up momentum."

The OECD left its 2004 economic growth projections for the euro zone and the U.S. unchanged at 1.8 percent and 4.4 percent, respectively, but lowered its prediction for Japanese growth to 2.6 percent in 2004 from 4.0 percent.

Although figures released this week show the Japanese economy contracted for three straight quarters last year, the official 2004 growth rate of 2.6 percent is the strongest since 1996. And Cotis said other indicators foreshadow a pickup in activity, particularly improvements in business investment and corporate profitability.

Growth across euro-zone countries has been "dispiritingly uneven," Cotis said, but added that domestic demand, weak in the fourth quarter, should gather strength. Business confidence, he said, is higher than historical means and there are hints of a revival in investment. Consumer sentiment, despite high unemployment, is "creeping up."

"Against this backdrop, GDP growth can be expected to inch back up toward potential," Cotis said.

Still, he noted that the euro's appreciation "has been taking a toll, with some lag."

In the United States, Cotis said domestic demand has remained healthy, with "buoyant household consumption" and business investment.

A gradual rise in U.S. interest rates would be appropriate, Cotis said at a news conference, while monetary policy-makers in the euro zone and Japan would do well to hold back from interest rate hikes in the near term.

Renewed appreciation of the euro against the dollar and Asian currencies remains a "risk factor" for growth in the common currency area, Cotis said. "We still have a German economy that is strongly dependent on exports."

Cotis noted that investment spending is beginning to pick up in Germany, the euro zone's largest member. However, an appreciation by the euro during the early part of 2005 could cut short that pickup.

"I would like to see German investment pick up first, then a euro appreciation," Cotis said. "We still have a nervous situation."

Cotis said many developed countries' public finances "remain precarious," with aging populations already beginning to erode tax revenues and weigh on spending in some _ particularly Japan.

He said health care and pension reforms were needed to put public finances back on a sustainable course.

Asked if the recent U.S. draft budget marked the beginning of an effort to correct the country's fiscal imbalances, Cotis said it wasn't yet clear that the United States is moving toward firm fiscal discipline.

"Overall, we do not have enough concrete evidence to say there will be a spectacular clean-up of American public finances," Cotis said. "This is obviously a matter of considerable concern."