OECD sees strong euro, tight credit hitting eurozone growth

PARIS, Dec 6, 2007 (AFP) – A strong euro and tougher credit conditions will weigh on the eurozone economy next year, the OECD predicted on Thursday, cutting its 2008 growth forecast to 1.9 percent from 2.3 percent previously. It also warned that a stronger-than-expected slowdown in the United States, Europe’s biggest trade partner, would also weigh heavily on the eurozone economy. With risks to growth rising, the Organisation for Economic Cooperation and Development advised the European Central Bank (ECB) against raising interest rates despite high inflation.

Although the eurozone faced growing headwinds, the OECD still sounded an upbeat note about its economic prospects, forecasting that growth would pick up slightly in 2009 to 2.0 percent. It expects growth this year of 2.6 percent.

“Higher interest rates, a stronger euro and tighter credit conditions are all damping activity,” the Paris-based organisation said in the latest edition of its twice-yearly Economic Outlook.

“But the outlook remains relatively good, with growth projected to return to its potential rate following some slight near-term weakening,” the report added.

Although firm economic growth and rising commodity prices had driven inflation we