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Slowing activity in the US economy and a possible sudden cooling of overheated property markets are the main threats to the world economy in 2007 after vigorous recovery this year.
The International Monetary Fund said it was lowering its growth estimate for next year from its current prediction of 4.9 per cent.
But chief economist John Lipsky added that the IMF nonetheless continued "to anticipate a favourable environment for growth" and said he saw "no obvious reason to be concerned" by the recent plunge in the dollar against the euro.
The world is continuing to benefit from its most prolonged economic expansion since the 1970s, with growth of about 5 per cent for each of the last four years.
Even record high oil prices, which this year hovered around US$80 ($116) a barrel, did not slow growth.
And despite the stalling of the Doha round of World Trade Organisation negotiations, global commerce is booming, buoyed by emerging economies like China and India.
Prudent optimism is the prevailing mood in the international institutions that watch over the global economy.
The Organisation for Economic Cooperation and Development said last month in its latest review of the world economy, "All considered, the outlook for the OECD area remains favourable."
The 30 OECD countries should show growth next year of 2.5 per cent, and in 2008, they would grow by 2.7 per cent.
The United States seemed on course for a "soft landing" and the eurozone was unexpectedly robust as part of an evening-out of growth, which might well avert "a major slowdown" as in 2000, the OECD said.
OECD chief economist Jean-Philippe Cotis said the Chinese yuan remained undervalued, and that a rise of the currency would be in China's interests.
The Japanese economy would grow by 2.0 per cent next year, down from an earlier estimate of 2.2 per cent.
However, Asian countries, learning from their currency crises in the 1990s, had built up dollar "war chests", the OECD said.
An eventual reduction of the US current account deficit would probably involve "further adjustment in the dollar exchange rate", which could involve "sharp movements not only in exchange rates but also in interest rates".
But now, US monetary authorities should think about easing interest rates late next year, the European Central Bank should consider tightening rates further, and Japanese authorities should provide room for prices to rise so as to bury deflation.
"Growth should remain buoyant in China, India and Russia and other emerging economies," the OECD said.
Low interest rates had boosted recovery through property prices, but prices were around "unsustainable levels", notably in the United States, Denmark, France and Spain.
Household finances generally seemed able to cope if prices cooled, but "history suggests that sharp housing corrections can be hard to contain", the report warned.
Cotis said the over-heating in some European home markets such as France, Denmark and Spain would cool, but this should not endanger eurozone recovery.
The OECD report warned that global current account imbalances were still large and housing markets looked richly priced.
It forecast that the US current account imbalances would "stop worsening" and growth of the Chinese surplus would slow down.
But the US current account imbalances "must revert to a sustainable level at some point", and the "unwinding could be disorderly and could involve a bout of exchange rate volatility and a global surge in interest rates".
In that event, "housing and construction markets would be hard hit".
- AFP
