- The Washington Times - Tuesday, May 11, 2004

PARIS (AP) — Economic growth is accelerating in the major industrial nations but the performance gap between the United States and the 12-nation euro zone is widening, the Organization for Economic Cooperation and Development said in a report published yesterday.

In its twice-yearly Economic Outlook, the Paris-based OECD raised its combined growth forecast for its 30 industrialized member countries to 3.4 percent from the 3 percent predicted in November.

U.S. growth was seen at 4.7 percent, up from the 4.2 percent earlier forecast. But the OECD cut its euro-area growth prediction to 1.6 percent from 1.8 percent.

“In the United States, the economy has already been growing well above potential, and other English-speaking countries, which took part only marginally in the past slowdown, are cruising ahead,” the report said.

“The recovery is still, to a large extent, bypassing Continental Europe, where domestic demand and household expenditure remain surprisingly weak.”

Given weak consumer confidence and low inflationary pressures in the 12-member euro zone, the OECD said there “seems to be a case” for an interest rate cut by the European Central Bank.

Looking ahead, the report said growth could be more evenly shared, since “the world recovery has achieved enough of a momentum to start pulling European economies out of their domestic anemia.”

But it warned the gap may not close if the United States fails to rein in its swelling public deficit or if further dollar depreciation does more harm to European exports.

For 2005, the report predicted 3.3 percent growth for the OECD area, up from the 3.1 percent earlier forecast. It lowered both its U.S. and euro-zone forecasts by 0.1 percent, to 3.7 percent and 2.4 percent respectively.

The organization also sharply raised its Japanese growth predictions to 3 percent this year and 2.8 percent in 2005 — up from the 1.8 previously forecast for both years.

Despite its better-than-expected outlook, however, the OECD said Japan needs to forge ahead with vital structural changes — including a cleanup of banks’ bad debt — if it hopes to beat deflation for good and ensure long-term economic growth.

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