PARIS, Sept 3 - The OECD on Wednesday halved its full-year growth forecast for the euro zone and urged the ECB to further relax monetary policy if the 12-nation bloc's economy failed to recover soon. In an interim report OECD chief economist Jean-Philippe Cotis said the Paris-based think-tank was cutting its euro zone growth forecast to 0.5 percent from 1.0 percent previously. The report maintained its 2003 growth forecast for the United States at around 2.5, and said that with core inflation still falling in the United States, the current expansionary monetary policy stance could be maintained.
"It would seem that US real GDP growth may approach 2.5 percent in 2003 as a whole," the report said. "In contrast, figures imply annual euro area growth of only around 0.5 percent (in 2003)." "In the euro area, further monetary relaxation would be needed if clear signs of recovery failed to materialise in the near future," the report added. "The (global) recovery may gain momentum in the remainder of 2003, backed by policies stimulus, notably in the United States. "The pattern of recovery seems likely to continue to be uneven, however, among the major OECD regions, with the euro area remaining a 'weak spot'," said the report. Germany, the euro zone's biggest economy, and Italy are already in recession -- defined as two consecutive quarters of contraction -- and the zone's second largest economy, France, is teetering on the brink. Outside the euro zone, Britain was seen registering a more healthy 2.5 percent growth this year.
In Japan, Asia's biggest economy, "if growth in the second half of 2003 were to match that in the first, full-year growth would exceed two percent," the OECD said. The think-tank said that Japan's "unconventional monetary policy is starting to work and should be pursued vigorously until deflation is eliminated." The OECD said that many large countries in the 30-nation grouping were running large and deteriorating budget deficits "in a context where medium-term strategies are either absent or under pressure. "This worrying trend calls for vigorous corrective action as soon as the recovery achieves some momentum." A fall in unemployment would lag behind the projected pick up in output, therefore downward pressure on inflation should continue "for a while, but further ahead the risk of deflation now appears very remote," the OECD said.//