‘US Economy Leads World Recovery but Euro Zone Struggles’

PARIS, 4 September 2003 — The US and Japanese economies seem to be recovering firmly, heading for growth of two percent or more this year, but the euro zone will struggle to achieve growth of 0.5 percent, the OECD chief economist Jean-Philippe Cotis said yesterday.

Commenting that Western Europe was the weak spot in the rising world economy, Cotis said that the US economy was expected to grow this year by at least 2.5 percent as forecast by the OECD in April, achieving a rate of growth of 3.0 percent in the second half after two percent in the first half.

The Japanese economy had grown in the first half and could show growth of 2.0 percent or slightly more for the whole year, he said. In April the OECD had forecast 1.0 percent. Euro-zone growth might rise to about one percent in the second half, giving a full-year figure of about 0.5 percent, he said, warning also that Germany and France would break euro-zone deficit limits for the third year in 2004.

The European Central Bank should be prepared to cut its key interest rate if recovery in the euro zone remained sluggish, he said. Inflation in the euro zone was running at about 2.0 percent “which is doubtless not satisfactory for the ECB”, he said. The ECB, which has set a medium-term ceiling of 2.0 percent for inflation in the euro zone, is to hold its first monetary policy meeting after the summer holiday today. However, it is widely expected to hold its key rate at 2.0 percent, twice the level of the key rate by the Federal Reserve Board in the United States.

Overall, recovery in the 30 countries covered by the Organization for Economic Cooperation and Development “seems now to be well under way”, Cotis told a press conference to present an interim assessment of the outlook. Continental Europe was the exception. Recovery was “relatively weak” and was running about six months behind the rate forecast earlier by the OECD.

Recovery would be “relatively modest” in the second half of 2003 and growth in the euro zone for the whole of this year would be about one percent. Globally “our scenario is for a progressive recovery”, he said, remarking that monetary policies were generally “accommodating”, meaning that interest rates were rather relaxed.

In the United States, recovery was now established and the economy there was expected to show a rate of growth in the second half of about 3.0 percent which would result in “an average of 2.5 percent over the whole year”. In Japan, growth should amount to “two percent or slightly more” this year. Cotis said that Germany was “certain” to exceed euro-zone public deficit limits next year and that France would also breach the rules.