The Organization for Economic Co-operation and Development (OECD) predicts global economic growth to be at 3.6% in 2004. The OECD lowered its forecast in the wake of a rise in oil prices and drop in consumer confidence.

The OECD claims in its semi-annual report that the slowdown in the global expansion was caused primarily by increased energy costs. The economies of the 30 member states of the Organization for Economic Co-operation and Development are expected to grow at 2.9% in 2005 and 3.3% in 2004.

The prospects for the American economy are viewed as dim by the OECD in the light of rising oil prices and soaring US trade deficit that is expected to widen to 6.4% next year, up from the already existing 5.7%.

These projections seem to gain further support from the data released yesterday by the US Commerce Department that show a 2.4% drop in pretax profits of private and public companies in the third quarter as compared to the third quarter. The decrease was caused by the rising raw-materials prices, steep rise in labor costs, and in part by hurricane-related damage.

The US budget deficit will trigger further dollar decline against the euro negatively impacting the economic growth in the eurozone, as the European exports are going to cost less and less when translated in dollars.

This speculation led the OECD to project a meagre 1.9% growth for the 12-nation area.

Japan’s economic rebound is also expected to slow down to no more than 2.1% despite a brilliant turnaround this year.

The world economic growth will largely depend on the resolution of the challenges presented by soaring energy costs.

"Future oil prices will crucially depend on further progress in energy conservation in emerging economies as well as the United States," the report said.

The forecast numbers are based on a drop in oil prices to $47 per barrel for the Brent crude at the end of 2004 and a projection of $44 per barrel by late 2006.