Paris, April 24 (Bloomberg) -- The OECD trimmed its forecast for global growth this year to 1.9 percent, predicting an ``unspectacular'' recovery after the end of the Iraq war. The Organization for Economic Cooperation and Development lowered its 2003 growth forecast for the 30 industrialized economies that make up its membership from its 2.2 percent estimate in November. The Paris-based organization left unchanged its 2004 forecast of 3 percent growth. ``With the ending of war and the securing of Iraqi oil fields, the threat of an oil crisis sending the world economy into outright recession has subsided,'' Chief Economist Jean-Philippe Cotis said in the OECD's biannual economic outlook report. The U.S. economy, supported by tax cuts and interest rate reductions by the Federal Reserve, will pace the global recovery as companies step up investment, production and boost inventories, the OECD said. The dozen countries sharing the euro and Japan will be the main laggards in growth, the report says. ``We'll have to wait for America to turn around and get the rest of the world going again,'' said Flavio Pasotti, chief executive of plastic-mold maker Stylmeccanica SAS, whose customers include Fiat SpA. Japan and Europe's largest countries, especially Germany, must carry out economic reforms to ``regain economic momentum'' and close the gap for potential growth with the U.S., which has been widening for more than a decade, Cotis said.
Global Risks
The end of the Iraq war has lifted what represented the most ``acute source of risk'' to global growth, the OECD said, and will help bolster business confidence. Oil prices should average $25 a barrel from the second quarter. OECD models suggest a yearlong $10 change in the price of a barrel of oil would raise or trim growth by a quarter percentage point and cause half a percentage point change to headline inflation rates. Among the risks to global growth the OECD said severe acute respiratory syndrome, or SARS, might have a ``significant'' economic impact on affected countries ``if the emergency were to worsen and persist.'' The OECD didn't give an estimate of the impact of SARS. The disease emerged in China late last year and has infected at least 4,288 people worldwide and killed 251 to date, the World Health Organization said yesterday. U.S. growth will be 2.5 percent this year, accelerating to a stronger-than-expected 4 percent in 2004, according to the organization's forecasts. The Fed will probably begin reversing the string of a dozen interest rate reductions that began in January 2001 by the end of the year, the OECD predicts.
`Below Potential'
The main revision to the OECD growth forecasts concerns the euro region, where the economy will expand by 1 percent this year rather than the 1.8 percent rate predicted earlier. The main cause is rising unemployment, which will damp consumer spending. The European Central Bank has scope to lower interest rates, since ``growth may remain below potential during the next few quarters, while core inflation is decelerating,'' Cotis said. The ECB lowered its benchmark interest rate to 2.5 percent last month, the lowest in almost 3 1/2 years. The OECD expects the ECB will reduce rates by half a percentage point in the ``not-too- distant future,'' Cotis said at a press conference presenting his report.
EU Deficits
In Europe, governments' scope to stimulate growth by lowering taxes and raising spending is limited, constrained by European Union requirements for member countries to keep deficits below 3 percent of gross domestic product or face fines. Germany and France are expected to violate the EU's public- finance rules in the three years to 2004 unless they cut spending or raise taxes, the OECD said. Japan's economy will probably grow by 1 percent in 2003 and 1.1 percent next year, it said. A ``decisive restructuring of the financial sector'' is necessary, the OECD recommends, adding that the Bank of Japan hasn't done enough to contain deflation by increasing money supply.//www.bloomberg.com