Europe is on course to be the lead economy supporting global growth in 2007 and fill the gap left by the United States, which is beset by problems in its housing market, AP QUOTED SOURCES OF OECD as saying Thursday. The group lowered its U.S. forecasts and raised its outlook for Europe. «The recovery in Europe has been stronger than we expected,» OECD Chief Economist Jean-Philippe Cotis said at a news conference. «The slowdown in the U.S. has been more robust than we anticipated.» The Organization for Economic Cooperation and Development sees economic growth in the 13-nation euro zone and Japan eclipsing the United States for the first time since 2001, when the world's largest economy entered a brief recession. It predicts U.S. expansion will slow from 3.3 percent last year to 2.1 percent this year, less than the 2.4 percent it had expected in November. The pace of growth in euro zone will reach 2.7 percent this year, led by Germany, compared with the 2.2 percent previously forecast. The Italian economy has rebounded more than expected, while France remains a laggard. The Paris-based group said that in 2007 «growth differentials among the major seven economies, as well as differences in employment gaps, were the narrowest they have been in more than a decade.» It expects the Japanese economy to expand 2.4 percent this year, while growth in China's booming economy is expected to stay above 10 percent at least through next year. In 2008, the OECD predicted, the U.S. will recover, outpacing Europe at 2.5 percent compared with 2.3 percent. The Japanese economy is on course to grow at a 2.4 percent clip. Investments will drive growth and rising wages may lift Japanese consumption, it said, echoing the views of the International Monetary Fund. «Our central forecast is very favorable, with a soft landing in the U.S. and a strong and sustained rebound in Europe, a solid trajectory in Japan and a 'bubbly' conjecture in China and India,» Cotis said in a preface to the 253-page Economic Outlook, published twice a year. Neither China nor India are OECD members. Cotis said the impact of the housing market on U.S. economic problems may have been overestimated. If the slide in growth is due to more general factors it would explain high inflation rates, he said. The organization is mulling whether to revise down the potential of the U.S. economy, he said. «Growth potential may be a bit lower than we initially thought,» he said. Risks to the global economy include «high and volatile» commodity prices, financial markets, rising government deficits, and imbalances in world trade. Inflation risks are increasing as unemployment falls, the economic think tank said. The OECD said the U.S. Federal Reserve should be able to cut the cost of borrowing in 2008 as inflation pressures lessen. The European Central Bank may need to keep raising interest rates to keep inflation to its target of close to and not exceeding 2 percent. Strong business sentiment in Europe's biggest economy should also bolster expectations that the ECB will raise its key interest rate in June to 4.0 percent from the current 3.75 percent. The Ifo Institute said Thursday that its index of business sentiment held steady in May, just below its all-time high from late last year.
