OECD Predicts Solid U.S. Growth With Strong Employment Rebound

By Agence France-Presse The United States should enjoy solid economic momentum next year, with growth of 4.2% and a strong pick up in employment, but gains could be undone by a gaping current account deficit and higher interest rates, the OECD said. The Organization for Economic Cooperation and Development, in its twice-yearly economic outlook, raised its projection for 2004 U.S. growth from 4% in April. It forecast an increase in output of 2.9% this year and 3.8% in 2005. "The recent rapid pace of growth is expected to moderate over the coming quarters, but annual gross domestic product growth should exceed its potential rate of about 3.25% for the foreseeable future," the OECD said. The OECD report was prepared well ahead of the announcement in Washington last week that U.S. economic momentum exploded in the third quarter to hit a 19-year record annualized pace of 8.2%. The OECD study was surprisingly optimistic about U.S. employment prospects, foreseeing employment to rebound "rather strongly" despite impressive gains in productivity. The jobless rate is predicted to decline from 6.1% this year to 5.9% in 2004 and 5.2% in 2005. Economists and analysts in the United States have been warning of a "jobless recovery," notably as U.S. companies responded to a recent recession by boosting productivity -- output per worker per hour -- and are now able to get by with fewer employees. But the OECD report concluded that "despite the impressive productivity gains, firms will probably soon be forced to expand their payrolls in order to meet demand." The organization cited an acceleration in global demand and a weaker dollar, which makes U.S. exports less expensive, as factors sustaining U.S. economic activity in the coming months. It also pointed to the stimulus provided by increased military-related spending, as well as healthy levels of domestic consumption and business investment. But hanging over OECD's upbeat assessment are the huge U.S. budget and current deficits. The shortfall in the U.S. current account, the broadest measure of its trading relations with the rest of the world, stands at 5% of gross domestic product and is projected to expand to 5.1% in 2005. By comparison, key U.S. trading partners Japan and the European Union enjoy current account surpluses. "The sharp rise in the (US) federal budget and current account deficits increases the risk of disorderly exchange-rate movements and a larger rise in long-term interest rates than projected," the OECD said. Copyright Agence France-Presse, 2003

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