Brussels, 07/03/2006 (Agence Europe) - Following the slow down among Member States in the last quarter of 2005, economic activity has accelerated, but has not yet reached its full potential, according to the Organisation for Economic Cooperation and Development (OECD) in its interim forecast, published on 6 March. For the G7 countries, the Organisation is expecting growth of 0.8% in the first quarter and 0.7% in the second. However, it notes some risks, such as the volatility of oil prices and the situation in the property market which is a source of concern in some Member States.
US economic data point to a sharp rebound in the first quarter (1.1% and 0.9% thereafter) and Japan is expected to continue on the same lines as at the end of last year (with growth of 1.1% and 0.9% in the first two quarters). In the euro-zone, indications from raw data depict a still fragile situation, while surveys show greater business confidence. The euro-zone is expected to show growth of 0.6% during the first and second quarters of 2006. In Germany, confidence has grown considerably, not only in export-oriented sectors, but also in industries largely dependent on domestic demand (building, retail sales), notes the OECD. Overall, a rebound in domestic demand in the euro-zone is expected for the first half of the year, says the OECD, which considers, however, that growth will remain significantly below potential. In February, the European Commission stuck by its seasonal predictions for the euro-zone, anticipating 1.9% growth for 2006 and an average inflation level of 2.2% (see EUROPE 9136).
At a time when the European Central Bank has just raised interest levels in the euro-zone by a quarter of a percentage point, the OECD is calling on central banks to exercise caution (see EUROPE 9143). Jean-Philippe Cotis, OECD Chief Economist, does not rule out further monetary tightening from the Federal Reserve, whose main reference rate is 4.5% after a series of increases, and expects interest levels to remain constant in Japan in the near future. He considers that, in the euro-zone, any new upward movement will be based on “unambiguous signs” that slack is shrinking and that “underlying inflation pressures are mounting”. Mr Cotis told journalists that, in the euro-zone, inflationary pressures seemed to be under control and that headline inflation was “reverting to target”, differing thus from Jean-Claude Trichet, who said last week that price rises in the short- to medium- term were expected to exceed the 2% suggested by the ECB.
Underlining too the risks of excesses in the housing market, the President of the ECB said that bank loans had risen in value three times more quickly than GDP. At a meeting with journalists in Paris, Mr Trichet pointed out that, whereas some countries, like Spain, were enjoying a bullish property market, others, like Germany, were facing a depression in property prices. He gave assurances that the ECB was keeping a watchful eye on the situation.