The global economy is expected to pull through again in 2006 with steady but not spectacular growth, despite the ballooning U.S. budget deficit, tightening interest rates, and the specter of higher energy prices, said economists at the annual meeting of the World Economic Forum in Davos.

In 2005, observers worried that massive global imbalances and rising energy prices would cause a slowdown in the U.S., a collapse in the dollar and possibly a global recession.
Instead, the global economy brushed off a spike in oil prices and, boosted by record growth in China and a recovery in Europe and Japan, grew at a robust 3.1%.

Forecasters at the Centre for Economics and Business Research expect growth of 4.1% this year, down from 4.3% in 2005. The real harm, they say, won't happen until 2007, when they predict growth will weaken to 3.5% as France and Germany screech to a halt and Chinese growth cools down.

A U.S. housing market bust, combined with at least two expected interest rate hikes, would cause Americans to rein in spending, with a major impact on the global economy. Much of the spending of recent years has been on the back of higher house prices, as U.S. consumers have remortgaged their homes to release equity.

In the U.S., the threat of a property bust combined with higher interest rates and continuing high oil prices suggest the economy likely won't be able to maintain the same momentum as in 2005, when it grew around 4%.

The World Bank forecasts that a supply shock that reduced oil deliveries by 2 million barrels a day could push prices to more than $90 a barrel for more than a year and reduce growth by 1.5% the following year.

Despite these concerns, observers say U.S. growth of 3% still looks possible, which would be one of the strongest rates managed anywhere in the world -- except in China and India.

The Chinese superpower is expected to continue its rise in the charts after growth of close to 10% helped it become the world's fifth-largest economy in 2005.

The OECD predicts China's economy will grow by 9.4% in 2006 and 9.5% in 2007. And although there are signs of overheating in India, the world's largest democracy should see growth in the range of 6% to 7% in 2006.

David Owen, European economist for Dresdner Kleinwort Wasserstein, says the euroland recovery has been driven by strong export growth, facilitated by a weaker euro, and a surge in investment, but he warns that a pick up in consumer spending will be needed in the second half for the growth to be sustained.

Even then, forecasts are unanimously cautious. Touati sees growth of about 2%, an improvement from the 1.3% of 2005, but "still nothing to boast about."