Oil Is The No. 1 Cloud Over World Economies Source: The Columbian Publication date: 2000-11-21

PARIS (AP) The Organization for Economic Cooperation and Development on Monday said growth would remain solid in its 29 member countries over the next two years but warned that high oil prices could cloud the rosy outlook. In its twice-yearly report, the group said the pace of growth in the powerful U.S. economy would slow gently, although interest rates might have to be boosted again to curb demand and stifle any inflationary pressures.

"The overall outlook remains relatively favorable: Inflation should remain subdued and economic expansion should continue," the Paris-based OECD said.

The OECD warned that the major uncertainty facing most member economies is the outlook for oil prices, saying that if oil returns to its 2000 highs of around $38 a barrel and remains there until the end of 2002, "the level of real GDP could be lower by 0.2 percent to 0.4 percent in the main OECD areas by the end of the projection period."

If oil prices were to return to $17.50 a barrel, the average of the past 15 years, activity would strengthen and inflation would be lower in all regions, it said.

Soaring oil prices this year forced the Organization of Petroleum Exporting Countries to boost output by 3.7 million barrels a day and triggered Europe-wide protests by consumers angered by high gasoline prices. Producers blame high fuel taxes, refining bottlenecks and speculation for the high prices.

Brent crude for delivery in January was trading up 27 cents at $33.35 Monday on London's International Petroleum Exchange. Crude futures were trading up 42 cents at $35.48 on the New York Mercantile Exchange in New York.

U.S. economy

For the U.S. economy, the OECD forecasts growth in gross domestic product of 3.5 percent in 2001 and 3.3 percent in 2002 from a projected 5.25 percent in 2000.

"In view of the prospects for increasing core inflation and in order to check inflationary expectations, some additional monetary tightening may be called for," the OECD said.

The U.S. Federal Reserve's Open Market Committee, which rules on monetary policy, decided to hold interest rates steady at last week's policy meeting, although the committee announced it would retain a bias in favor of further tightening to help combat inflationary pressures.

The OECD forecast that rates would need to be lifted another half percentage point; since June 1999, the Fed has hiked rates six times for a total of 1.75 percentage points.

In the 15-nation European Union, growth is seen at 3.0 percent next year, and 2.7 percent in 2002 after a forecast 3.4 percent this year.

The OECD called on Germany and France to exercise fiscal prudence over the coming two years and said Italy must introduce more structural reforms and tackle the stark economic differences between the north and south of the country.

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-- Martin Thompson (mthom1927@aol.com), November 22, 2000