The US is leading the world out of last year's economic downturn, but global policy makers will have to raise interest rates and curb government spending to avoid rising inflation, the OECD (Organization for Economic Cooperation and Development) said yesterday.
In its twice annual economic outlook, the Organization for Economic Cooperation and Development said the economies of its 30 members -- including the world's most developed nations -- will grow by 2 percent this year and 3 percent in 2003.
The Paris-based research organization said that growth is reviving as inventories fall to normal levels and investment in information and communication technologies rebounds.
The recovery has been aided by low interest rates and supportive fiscal policy, and central banks will now have to take difficult decisions about when they start to raise interest rates.
"The possible inflationary consequences of ... faster growth make the timing of the withdrawal of stimulus a critical policy consideration. As slack in the product and labor markets dissipates, monetary policy should steadily be moved back to a neutral and ultimately to a restrictive stance," the OECD said.
However, with economic activity in the euro-zone "likely to remain sluggish" in the first half, the OECD said the European Central Bank should be more cautious than the US Federal Reserve about raising interest rates. The OECD expects the euro-zone economy to grow by 1.3 percent this year and 2.9 percent in 2003.
The report said that activity in the Asia-Pacific region as a whole is likely to pick up, while the Argentine crisis is yet to have a serious negative impact on the other economies of Latin America.
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