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Last Updated: Friday, 28 October 2005, 06:47 GMT 07:47 UK
US growth still solid, OECD says
US flags fluttering in the breeze
As the world's biggest economy, US growth has a massive impact
The US economy is continuing to grow at a solid - albeit slower - pace, the Organisation for Economic Co-operation and Development said in a report.

Over the next 18 months, the OECD estimates that the world's largest economy will expand by 3.25%.

The main driver of growth is set to be domestic demand.

However, there are worries and the OECD highlighted inflation, a drop in house prices, a weak US dollar, and budget and trade deficits as key concerns.

'Longer-term'

On top of that, it was feared that the recent hurricanes, coupled with surging crude oil and raw material costs may slow growth.

"Despite higher energy prices, the expansion has continued at a solid pace, driven by private domestic demand," the OECD said in its report.

"The longer-term outlook also appears to be favourable," it said.

The US economy has been recovering from a slowdown and the Federal Reserve has been steadily raising interest rates from 1% to the current 3.75%. "With the output gap closing, stimulus is appropriately being withdrawn," the OECD said.

"However, monetary tightening since mid 2004 has not yet translated into higher long-term interest rates, and the incipient decline in the federal budget deficit owes much to the recent buoyancy of revenues," it explained.

Global reach

Should the budget deficit keep widening, then that may pose a threat to global growth as well as US expansion.

"Few other OECD countries have ever managed to sustain imbalances of that magnitude without eventually experiencing sharp downward pressure on the value of their currencies," the OECD said.


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