Global economic growth quickened in the last few months and inflation is under control despite high world oil prices, the Organisation for Economic Co-operation and Development said on Tuesday.
In a twice-yearly report, the Paris-based OECD said that the European Central Bank should not raise interest rates until late next year to avoid smothering a nascent recovery, stressing that it saw no evidence or prospect of inflation spreading.
The OECD forecast 2.9 percent growth in 2006 and 2007 after 2.7 percent this year across its 30 member countries as a whole, with the US economy steaming ahead at 3.5 percent next year and 3.3 percent the year after, following 3.6 this year.
Japanese growth is expected to ease off a bit to 2.0 percent next year and the year after, from 2.4 percent this year, and the OECD predicted an acceleration in the 12-nation euro zone to growth of 2.1 percent next year, after just 1.4 percent in 2005.
"All in all, global growth has been exceptionally vigorous, fuelling large price increases in oil and commodities markets," the OECD said.
It sees world trade picking up to 9.1 percent next year and 9.2 percent in 2007, after 7.3 percent in 2005 - bringing it back closer to the heady 10 percent rate of 2004.
The OECD said oil prices and other imbalances such as the US current account deficit continued to pose risks to the global economy but that the doubling of oil prices since 2003 had done less damage than one might have first imagined.
It predicted a few more anti-inflationary rate rises by the US Federal Reserve before a "plateau" in its key rate next March at 4.75 percent, while it also said it believed Japan could start tightening monetary policy for the first time in years in 2007.
The OECD's main concern was clearly closer to headquarters in Europe, where the ECB has said it will raise interest rates and is expected by financial markets to do so on Thursday at a meeting of the governing council of the euro-zone central bank.
"What you want to avoid is a situation where you have some tightening at a stage which may prove premature," the OECD's chief economist Jean-Philippe Cotis told Reuters in an interview.
"The problem is that we've had several episodes of aborted recovery."
The OECD report suggested that the ECB should proceed more in the fashion of the US Fed, implementing a gradual series of rate rises worth as much as 1.25 percentage points in all, but starting next September or October when economic recovery can be expected to have taken deeper root.
The OECD said a further oil price acceleration could upset what was a broadly encouraging outlook for the global economy, but that it was for now expecting a modest decline to around $51 a barrel by end-2007 from around $58 in fourth-quarter 2005.
"With price stability being maintained, a powerful impetus arising from the Asian and US economies and the respending of oil exporters' higher revenues, the case for a prolonged world expansion, finally extending to convalescent European economies, looks plausible," Cotis wrote in the OECD report.
According to OECD estmates, the surge in oil prices over the past two years took $350 billion out of the mainly oil-importing economies of the OECD and transferred it to oil-producer states, but much of that money was supporting world growth as demand from the Middle East rose accordingly, the report said.
Moreover, it appeared that some of the big profits made by oil-producing countries were being pumped into buying US government bonds, thus helping to keep long-term interest rates low and supporting global growth.
"While so far the OECD economy looks to have skated through the energy-price shock with relative ease, energy prices are expected to stay high in the years ahead," the OECD said.
Others risks included a US external deficit which absorbs the bulk of the aggregate current account surpluses in the world and is projected to rise further to a record 7 per cent of GDP, or 1.5 percent of world GDP) in 2007.
Beyond its membership, the OECD said it expected China to keep producing growth rates of nine percent a year and that further yuan appreciation would be helpful.
Growth in Brazil was forecast to pick up to cloeser to four percent again next year and the year after without compromising the country's inflation control targets, the OECD said.
Within Europe, France was expected to fare a little better than its German and Italian neighbours on growth while to the east, Hungary, queuing to join the euro, needed to rein in its budget deficit, the OECD said.
Russia's plans to cut value-added-tax were particularly ill-advised because they could stoke inflation, it said. The OECD saw similar risks in the new German coalition's plan to raise VAT but said this would not happen until 2007.
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