PARIS - THE US housing downturn will provoke a 'mild' but short- lived world economic slowdown next year, the Organisation for Economic and Cooperation (OECD) said yesterday.
The OECD has also downgraded its growth forecast for the world's wealthiest nations.
In its twice-yearly Economic Outlook, the organisation charged with improving the economic prospects of its 30 member states said it now expected growth of 2.5 per cent in the OECD area, down 0.4 percentage point from its May projection, but forecast a rebound to 2.7 per cent in 2008.
OECD chief economist Jean-Philippe Cotis said: 'Rather than a major slowdown, what the world economy may be facing is a rebalancing of growth across OECD regions.'
As economic growth in the United States and Japan slows, 'a solid upswing may be under way' in the eurozone.
But initially this rebalancing 'would not be strong enough to prevent a mild and short-lived weakening next year in the OECD area', he said.
While OECD slashed its US forecast to 2.4 per cent next year from May's 3.1 per cent, it raised the outlook for the eurozone by just 0.1 percentage point to 2.2 per cent.
Japan, Britain and Canada were among those downgraded, but the outlook for Germany and Italy improved.
Mr Cotis said the US had suffered a higher inflation shock than the OECD average because of its greater energy intensity, but he suggested that a mild economic slowdown could mean there was no need for the US Federal Reserve to raise rates again.
However, OECD warned that 'if risks of higher inflation outturns materialise in the near term, the need for an initial further tightening of monetary policy cannot be ruled out'.
The organisation cautioned against another interest rate rise in Japan because 'deflation is not over yet' and the 'the return to price stability is proving longer and less assured than expected'.
It warned once again of the risk to advanced economies of overvalued housing markets. 'Prices may now have reached unsustainable highs in certain countries, notably the US, Denmark, France and Spain,' according to OECD's analysis.
But OECD was hopeful of a gentle slowdown for the US housing sector, partly because households seemed well prepared to cope with a downturn.
FINANCIAL TIMES