The Organization for Economic Co-operation and Development today cut its forecast for 2005 economic growth in the industrialized world to 2.6% from 2.9%, blaming a slower-than-expected recovery in Japan and and Europe.

In a twice-yearly report, the OECD also raised its U.S. growth forecast to 3.6% from the 3.3% it predicted in November.

But the multi-nation trade group cuts its euro-area growth forecast to 1.2% from 1.9% and lowered its forecast for Japanese growth to 1.5% from 2.1%.

High oil prices and the stronger euro were only partly to blame for the wilting of the recovery in euro zone in the second half of 2004, said OECD chief economist Jean-Philippe Cotis.

“As time passes it is becoming increasingly evident that circumstantial arguments. . . are not sufficient to explain the string of aborted recoveries in Continental Europe,” Cotis said.

As a result, he said, future growth prospects “differ widely” among regions, “ranging from solid in Asia to back on trend in the United States, and weak and uncertain in Europe.”

Canada’s economy may be operating “slightly below potential, although most economic fundamentals have remained sound,” the report said, pegging economic growth at 2.8% in 2005 and 3.1% in 2006.

The report noted that uncertainties about the impact of the loonie’s rise have kept interest rates in a holding pattern, but warns that further increases “will be needed from the second half of 2005 onwards.”