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Last Updated: Tuesday, 5 September 2006, 15:59 GMT 16:59 UK
OECD sees Europe's economy strong
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The OECD says an interest rate rise in the Eurozone makes sense
The Organisation for Economic Development (OECD), the Paris-based think tank, has raised its forecast for European economic growth for 2006.

Europe's recovery seems "sufficiently robust", the organisation says, to boost eurozone growth to 2.7% in 2006 - up from its May forecast of 2.2%.

Growth of that magnitude would justify higher interest rates, OECD chief economist Jean Philippe Cotis said.

The European Central Bank raised interest rates in August to 3%.

European nations have seen their economies improve in the last quarter, the OECD said, boosted by better tax revenues and lower unemployment than had been expected.

'Further tightening'

Meanwhile, the OECD has left its growth forecast for the US in 2006 unchanged from its last economic outlook meeting on 23 May at 3.6%.

However the think tank also said another interest rate rise in the US might be needed.

"In the US, the Federal Reserve paused [in raising rates] in August but further tightening may turn out to be warranted if activity and prices do not slow down over the next few months," the report said.

Recent data from the US indicates that the housing market is cooling, implying a slower economy, but analysts are split over whether the recent pause in interest rate hikes will be temporary or not.

The OECD also predicts that the G7 group of richest nations will see their economies grow by 3%, up from 2.9% forecast in May.

The picture for Japan, however was different, the OECD warned, cutting its growth prediction from 2.8% to 2.5%.

There was a "strong case" for waiting before hiking interest rates again, it advised.

However the change was largely the result of a slower second quarter - and Mr Cotis warned it could be a "false alarm".

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