Two separate visions of the future emerged from the Organisation for Economic Co-operation and Development in its twice-yearly outlook on Tuesday.

The forecast was bright for all 30 OECD countries. But if risks became reality, a dark picture lay ahead, with US asset prices falling alongside a rise in interest rates, and stagnation prevailing elsewhere in the world.

Such uncertainty, according to the Paris-based economic think-tank, is the result of the imbalanced nature of the world economy and the limitations of economic forecasting.

Economists cannot factor into their forecasts the possibility that oil prices will keep rising, nor the risk that global trade imbalances might unravel, even though they worry about the potential fall-out.

Now that economies around the world are recovering, even in continental Europe, the message the OECD is sending to policymakers is clear: do not underestimate the fragility of the global economy.

As Jean-Philippe Cotis, the OECD’s chief economist, puts it: “There is a sense of relief that the short-run prospects around the world have improved, and [that] the resilience of the US economy in the short run is very strong, but underlying this equilibrium the risks are increasing.”

He was particularly concerned that trade imbalances around the world continued to increase. The OECD forecasts that the US current account deficit will grow from 6.5 per cent of gross domestic product in 2005 to 7 per cent in 2007. Correspondingly, rapidly rising surpluses in Asia are forecast to increase to over 8 per cent of GDP in China and
5 per cent in Japan by 2007.

“The longer we go on in this direction, the higher the probability of an abrupt unwinding,” Mr Cotis concludes. If the global economy were to be caught by unravelling trade imbalances, he expected higher long-term interest rates and falling asset prices in the US, a plunge in the dollar, deflationary risks in Japan and Europe, alongside weakening world growth.

The vulnerability of the global economy is the main reason the OECD is far less enthusiastic about tighter monetary policy in the euro area and Japan than the European Central Bank or the Bank of Japan.

For Europe, the OECD recommends that interest rate rises should wait until “the recovery gathers enough momentum and becomes more resilient”. In Japan, the BoJ should not change its extremely loose monetary policy until “deflation is definitively uprooted”.

The international body criticises the direction of government policy in the US, Asia and Europe. None of the important economies is setting economic strategies to make the world economy a safer place, it implied.

In the US, the OECD sees “a clear need for early fiscal retrenchment and tax reform to redress the saving/investment balance”: the Bush administration, though supportive of the principle of lower budget deficits, has not put policies in place to reduce deficits.

Asia’s problem is that “mercantilist” exchange rate management, particularly in China, prevents Asian currencies rising to a level that would cut trade imbalances.

Europe is at fault, the OECD says, for not introducing sufficient microeconomic reforms to improve the ability to shake off global economic shocks.

Mr Cotis contrasted the strong economic performance of English-speaking countries over the past five years with the weaker performance of the core eurozone members.

“This is the result of structural reform,” he said. “All of these economies were lame ducks 15 years ago.”

While most policymakers globally would agree with the OECD’s assessment of policy failures in other countries, they have been resistant to their own home truths. So the OECD expects difficult-to-quantify risks to global economic prospects will rise in the future, even if the headline figures are encouraging.

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