Oil shock far from over, OECD warns

The current oil-price shock that is creating uncertainty for the global economy is far from over, the Organization for Economic Cooperation and Development’s chief economist warned Sept. 6.

“There is a major shock, and there is no evidence it has reached its conclusion,” Jean-Philippe Cotis said during a news conference.

Issuing its latest interim report on the state of the global economy, the Paris-based OECD also said the current shock differs from the rapid oil price surges of the 1970s and 1980s. This time, Cotis said, prices have been rising more steadily, creating a greater degree of uncertainty.

“The rise in prices is less brutal than in previous shocks,” he said. “But we have no specific idea what will happen next.”

Oil prices have risen by about $20 a barrel since the 30-member club of industrialized countries last published economic forecasts in May. Cotis warned that the uncertainty they caused is likely to have a dampening effect on global business investment and consumer spending.

But while Hurricane Katrina may lead to a short-term surge in U.S. inflation rates, he said, the fallout from the disaster may be absorbed without a marked slowdown in economic growth. The U.S. Federal Reserve should continue to raise interest rates, he said, “although possibly at a more measured pace than hitherto.”

In a new economic forecast made before Katrina struck, the OECD maintained its prediction for 3.6 percent growth in U.S. gross domestic product this year.

It also expected the euro-zone economy to grow 1.3 percent this year, up from its previous forecast of 1.2 percent. But if non-energy prices continue to fall, Cotis warned, the euro zone is “in danger of entering into deflation.”

The European Central Bank should maintain a “very accommodative stance” and certainly not raise interest rates any time soon, Cotis said. “The time for monetary tightening won’t arrive in the foreseeable future.”

Prior to Katrina, the OECD also raised its 2005 growth forecast for Japan to 1.8 percent from 1.5 percent. Given its strong momentum, the Japanese economy is in better shape to weather higher gasoline prices than the euro zone, Cotis said, where “activity is more vulnerable to the oil price spike.”

—The Associated Press