The Organization for Economic Cooperation and Development is cutting its forecast for economic growth in the United States and the 15-nation euro region this year and next.

The Paris-based think tank says in a new report released today that economic growth in the OECD’s 30 members, including Canada, will slow to 1.8% this year and 1.7% next, having forecast in December that their combined GDP would increase 2.3% and 2.4%, respectively.

It says the United States economy will grow just 1.2% this year and 1.1% in 2009. Economic growth in the euro area and Japan will slow to 1.7% this year.

The OECD says financial market turmoil, sharply higher oil and commodity prices and cooling housing markets are battering global growth and making it harder for policy makers to gauge the right response.

The report holds out some optimism that that worst of the turmoil is over.

“The odds are improving that financial market turmoil has passed its peak,” the OECD said. “Still, its fallout will continue to act as a brake on growth for a considerable time to come,” the report says.

However, it adds that “OECD economies are facing three adverse shocks which are reducing demand: financial turmoil, a downturn in the global housing cycle, and a squeeze on real incomes from soaring energy and food prices.”

OECD outlook for Canada

As for Canada, gross domestic product is expected to grow 1.2% this year, down from 2.7% last year and from the 2.4% the OECD predicted in December. Growth is forecast to revive to 2% in 2009.

The report notes that economic growth decelerated sharply late in 2007 mainly because of faltering exports and manufacturing output.

It says that growth is projected to remain weak until spring 2009 as U.S. demand stagnates, but no recession is expected.

It adds that Canada’s current account may dip deeper into deficit, and the general government fiscal balance may show a small deficit as well, as both tax cuts and the business cycle eat into government revenues.

Economic growth is expected to bounce back in 2009 when credit market difficulties are worked out and the U.S. economy recovers.

The OECD says that “The monetary policy easing that started in late 2007 needs to continue in order to offset the likely protracted slowdown in the U.S. economy, the impact of the currency appreciation as well as the consequences of financial-sector stresses on the real economy.”