Fortunately, they have occurred at a time when growth was being supported by high employment that boosts income and consumption; by high profits and strong balance sheets that underpin investment and resilience in the face of financial losses and tighter credit; and by still buoyant world trade driven by robust growth in emerging economies.

• Accelerated adjustment in the US housing sector that will drag down growth to low levels in the near term but will not trigger a recession and will only modestly push up unemployment. Over the next two years, inflation will revert to a more comfortable level and the recent fall in the external deficit will be preserved – in both cases despite high oil and commodity prices.

• A partial decoupling of Eurozone activity from that of the United States, with a limited near-term slowdown in the underlying rate of expansion occurring at a time when capacity constraints were beginning to bite. Once immediate headwinds have faded, growth might return to potential, while headline inflation should ease to desired levels.

• A continued albeit weakened expansion in Japan that remains driven by the external sector but which will eventually lift the economy out of deflation, thereby heralding a more balanced growth pattern.

However, the OECD said that the trouble is that the probability distribution around this outcome has a fat tail on the downside. The main negative risks include a more pronounced or generalised cooling of housing markets than projected; additional turbulence in financial markets; and further upward pressures on already high commodity prices.

Against this backdrop, economic policy should prepare for the contingencies that could arise. There are several policy areas where appropriate policy settings can help to deal with any such risks.

Well-anchored inflation expectations have allowed a number of central banks to respond flexibly to the financial turmoil, through provision of liquidity to interbank markets as well as through lower interest rates than markets had previously expected. Expectations of low inflation also help the adjustment to higher oil and commodity prices and allows for a monetary policy response to cooling housing markets where necessary. Overall, the confidence that inflation will remain low, built up through a long and sometimes painful process of disinflation, constitutes a major policy asset.

Jørgen Elmeskov, Acting Head of Economics Department said, however, the continued anchoring of inflation expectations cannot be taken for granted. Indeed, margins of slack throughout much of the OECD have shrunk and are now small or non-existent -- even if their exact size is admittedly uncertain. Moreover, OECD economies are being hit by cost shocks: raw material prices have soared and, partly in connection therewith, the disinflationary effects of manufactured imports from China are fading. If signs were to emerge that inflation expectations are drifting up, it might be necessary to pay a price in terms of lower activity in the short term to preserve this vital policy asset.