New Asian tigers help bigger economies bounce back

Expansion in emerging Asian economies is helping the economies of Europe, Japan and the US bounce back after a weak end to last year, according to the Organisation for Economic Co-operation and Development (OECD).

But the Paris-based think-tank, which published an assessment of its 30 member states yesterday, said inflated house prices could put the world's economy at risk.

OECD chief economist Jean-Phillipe Cotis also urged the European Central Bank (ECB) to be cautious in raising interest rates further.

"Economic momentum on both sides of the Atlantic somewhat expectedly weakened in late 2005, but is now back in line," Mr Cotis said.

Low interest rates had helped the economies of Europe and America to recover after last year's slowdown, but posed problems for the future.

"As highlighted on earlier occasions, one source of risk in this regard stems from stretched valuations in some housing markets."

Mr Cotis said the US economy had now recovered from the adverse effects of last year's hurricanes and remained resilient.

Confidence in Europe's business sector - caused by export demand from Asia - was not yet filtering through to domestic demand, he said, but this was likely to change later this year.

"In the service sector at large, however, confidence remains weak, consistent with still lacklustre labour markets and very subdued wages. All in all, the strong external side should feed through to euro area domestic demand and a rebound can be expected in the first half of 2006."

He added the ECB should be cautious before tightening interest rates further. "Removal of monetary accommodation should be based on unambiguous signs that slack is shrinking and that underlying inflation pressures are mounting," Mr Cotis said.

The OECD also warned that its member states needed to tighten their belts in the face of mounting pressures on public expenditure, especially age-related ones.