![]() ![]() High oil prices were a response to strong demand around the world rather than an interruption to supplies, as previous oil price shocks had been, he said.Pick up a newspaper today and it is hard to find many reasons to be cheery. High oil prices remained a risk to the global economy, he said, but he was encouraged that the world had continued to grow strongly in the face of a tripling of oil prices. "The US economy needs to slow down below its long-term trend rate of growth and a cooling housing market is part of that." He pointed to the experiences of Australia and Britain where housing markets had cooled rather than crashed in response to higher interest rates over the past couple of years. Mr Cotis seemed relaxed about the US housing market, which is showing signs of a rapid cooling. If it does not do so you may need to have a further monetary tightening." "We are saying 'have a pause and then see if the economy is cooling'. ![]() He acknowledged that the succession of interest rate rises from the Federal Reserve over the past two years, from 1% to 5.25%, had slowed the economy somewhat but that inflation risks remained. The OECD left its growth forecast for America unchanged at 3.6% for this year, forecasting that the economy would grow a bit more strongly in the second half of the year than the 2.9% annualised it had managed in the second quarter of the year. ![]() He would not say where that neutral level was, but many economists think it may be between 3.5% and 4%. He said the European Central Bank, which has been gradually raising interest rates from last year's 2%, could probably continue raising them slowly from the current 3% to a more neutral level that would neither stimulate growth nor slow it down. "Europe has rediscovered the path of growth, although it is too early to say it is taking over the baton of global growth," he said, adding that the steamy pace of growth - 3.5% on an annualised basis - seen in the first half of 2006 was unlikely to continue in the second half. Mr Cotis, who has previously been rather downbeat on the eurozone's prospects, said it had grown more robustly than he had expected, helped in part by transitory factors such as the World Cup and time-limited construction subsidies, both in Germany. The OECD also revised up its forecast for growth in the 12-member eurozone, to 2.7% from the 2.2% it had pencilled in in May. Mr Cotis said he believed this pace would continue in the second half of the year. The British economy slowed sharply last year as consumer spending and the housing market faltered, but an interest rate cut in August 2005 contributed to a rebound in growth, which recovered to 0.8% in the second quarter from the first this year, above the economy's long-term trend growth rate, as consumer spending and business investment recovered. "I would not want to double-guess them," he said. Last month's interest rate rise was part of that, he said, but he refused to speculate on whether he thought the Bank would raise interest rates further. Mr Cotis was full of praise for the Bank's interest rate policy, saying the monetary policy committee had been attentive to inflation risks and contained them in the face of a sharp rise in oil prices. The Paris-based rich nations club revised up its forecast for growth in Britain this year to 2.8% - in line with that of the Bank of England - from the 2.4% forecast it made in May. ![]()
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