OECD sees growth firm, but risks abounding

The Paris-based Organization for Economic Co-operation and Development said the U.S. and euro area economies were growing faster than expected in forecasts six months ago, although Japan's economy was set to contract after the March earthquake, tsunami and nuclear crisis.

As a result, it said the U.S. Federal Reserve should look to raise interest rates this year, while the European Central Bank could afford to pause its tightening cycle for a while and Japan faced no pressure to act.

In its twice-yearly Economic Outlook, the OECD forecast world growth would ease to 4.2 percent this year from 4.9 percent in 2010 before accelerating to 4.6 percent in 2012.

"This is a delicate moment for the global economy, and the crisis is not over until our economies are creating enough jobs again," OECD Secretary General Angel Gurria said.

"There is also some concern that if downside risks reinforce each other, their cumulative impact could weaken the recovery significantly, possibly triggering stagflation in some advanced economies," he said.

The OECD raised its outlook for the United States from its last report in November, forecasting growth this year of 2.6 percent, compared with an estimate of 2.2 percent in November.

It was also slightly more optimistic about the outlook for growth in the euro zone forecasting the bloc's economy would expand 2.0 percent in 2011, up from 1.7 percent in November.

But it slashed Japan's forecasts after the country's triple disaster in March. It estimated the country's economy would contract 0.9 percent this year, having forecast growth of 1.7 percent in November.