The combination of financial market turmoil, sharply higher oil and commodity prices and cooling housing markets is battering global growth and boosting inflation, making it harder for policy makers to gauge the right response, the Organisation for Economic Cooperation and Development (OECD) said on Wednesday.

In its twice-yearly outlook, the Paris-based OECD cut its forecast for economic growth in the United States (US) and the 15-nation euro region for this year and next, and warned of a combination of weak growth and high inflation across developed economies.

Economies hit

"OECD economies have been hit by strong gales over the recent past and it will take time and well-judged policies to get back on course," Jorgen Elmeskov, acting head of the international organi-sation's economic department, said in a Paris press conference. "We underline that monetary authorities throughout the OECD area need to be cautious."

Economic growth in the 30 developed economies in the OECD will slow to 1.8 per cent this year and 1.7 per cent next year. That compares with a December forecast of 2.3 per cent in 2008 and 2.4 per cent in 2009.

The global outlook is being dragged down by the US economy, which will expand just 1.2 per cent this year and 1.1 per cent in 2009, the OECD predicts.

2.2 per cent recovery

That reverses its previous forecast that the world's largest economy would recover to 2.2 per cent in 2009 after two per cent in 2008. It said that the "odds have improved" that the financial crisis has passed its peak, but the effects on growth are likely to linger.

Policy makers may have to get used to the sharply higher commodity prices, driven by demand from the fast-growing economies of China and India, and should resist calls for tax cuts to counter rising food and energy prices, OCED said.

"Globalisation is no longer exerting the same influence," said Elmeskov. "It used to be the case that the penetration of cheap manufactured products from non-OECD areas was a rather potent disinflationary force, but that has recently become strongly counter-balanced by the impact of emerging market demand on commodity prices."