The combination of financial market turmoil, sharply higher oil and commodity prices and cooling housing markets is battering global growth and boosting inflation, making it harder for policy makers to gauge the right response, a Paris-based think tank said Wednesday. In its twice-yearly outlook, the Organization for Economic Cooperation and Development cut its forecast for economic growth in the US and the 15-nation euro region for this year and next and warned of a combination of weak growth and high inflation across developed economies. “OECD economies have been hit by strong gales over the recent past and it will take time and well-judged policies to get back on course,” Jorgen Elmeskov, acting head of the OECD's economic department, said in the report. Economic growth in the 30 developed economies in the OECD will slow to 1.8 percent this year and 1.7 percent next year. That compares with a December forecast of 2.3 percent in 2008 and 2.4 percent in 2009. The global outlook is being dragged down by the US economy, which will expand just 1.2 percent this year and 1.1 percent in 2009, the OECD predicts. That reverses its previous forecast that the world's largest economy would recover to 2.2 percent in 2009 after 2 percent in 2008. It said that the “odds have improved” that the financial crisis has passed its peak, but the effects on growth are likely to linger. Policy makers may have to get used to the sharply higher commodity prices, driven by demand from the fast-growing economies of China and India, and should resist calls for tax cuts to counter rising food and energy prices, it said. More generally, the OECD said signs that inflation expectations are drifting higher should call for caution. The agency said impact of the oil price shock combined with the financial turmoil is “difficult to estimate,” compounding “the risk of policy errors.” Central banks could err “in both directions,” the OECD said.
