OECD raises growth forecast for Europe


A strong and sustained recovery in Europe is underpinned by strong job creation and falling unemployment, according to the OECD’s May 2007 economic outlook.

The latest OECD Economic Outlook, published on 24 May, states that its “central forecast remains indeed quite benign” as it predicts “a strong and sustained recovery in Europe”. 

“Our forecast in Autumn 2006 was not accurate and recovery in Europe has been stronger than expected and slowdown in the US stronger than anticipated,” said OECD chief economist Jean-Philippe Cotis presenting the outlook. “There is a rebalancing between the United States and Europe and rebalancing within the European countries,” he added. In particular, recovery in Germany and Italy has been stronger than initially expected, whereas France lags behind.

The organisation predicts 2.7% growth in the 13-nation eurozone in 2007, instead of the previous 2.2% forecast, whereas the initially predicted 2.5% growth in the United States has now been reviewed down to 2.0%. “This is due to stronger contraction than predicted in real estate markets and decreasing corporate investment,” explained Cotis. He also said that the US economy might be more overheated than expected, as productivity gains and growth potential might be less than anticipated.

With regard the eurozone, the organisation sates that “with underlying inflation close to the central bank’s target, and upside risks on the horizon, some additional monetary tightening may be appropriate”. It also recommends countries to “take advantage of the upswing to reform their product and labour markets”, and suggests that further strengthening of the EU internal market would improve the eurozone’s longer-term growth prospects.

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