A forecast soft landing for the U.S. economy will not dent the recovery that is gathering pace in Europe, the Organization for Economic Co-operation and Development said tody.

However, the Paris-based organization cut its overall 2007 global growth forecast for its 30 mainly industrialized member countries to 2.5%, the lowest rate since 2003, from its previous prediction of 2.9%.

“Rather than a major slowdown, what the world economy may be facing is a rebalancing of growth,” OECD chief economist Jean-Philippe Cotis said in the organization’s twice-yearly outlook.

For Canada, the OECD says the economy is operating close to potential after tighter monetary conditions, terms-of-trade losses on the strong dollar and weaker exports.

“Looking forward, it is expected to benefit from some pick-up in external markets while domestic demand decelerates modestly following its recent robust expansion,” the organization’s economists say.

“Inflation pressures are likely to remain limited, as energy prices have fallen from recent peaks and wages may rise only moderately.”

The OECD said the Bank of Canada should hold the line on interest rates, while all levels of government must spend prudently “and the federal government should focus on reducing the debt burden before aging pressures accumulate.”

Globally, the OECD raised its growth forecast for the 12 countries that use the euro while cutting predictions for the United States to reflect a slowdown in the housing market.

It estimates U.S. growth of 3.3% for this year and forecasts a slowing to 2.4% next year, down from the 3.6 and 3.1% expansions it predicted six months ago.

The slowdown should remain “well contained” within the United States and Japan, where growth is seen falling to two% in 2007 from 2.8% this year.

The euro zone will post 2.6% growth this year and 2.2% in 2007, it predicted, raising previous estimates of 2.2% and 2.1%.