March 20 (Bloomberg) -- The U.S. economy will fail to grow for the first time in more than six years in the second quarter, the Organization for Economic Cooperation and Development said.

The stagnation will follow an expansion of 0.1 percent in the current period from the last three months of 2007, the Paris-based agency forecast today. That last time the U.S. economy failed to expand was in the third quarter of 2001.

``The U.S. economy is now essentially moving sideways, if not contracting outright,'' Jorgen Elmeskov, acting head of the OECD's economics department, said in a note today. ``It may be premature to declare a recession, but with the pace of activity so far below potential, economic slack is widening rapidly.''

The risks of inflation accelerating are rising as the U.S.- led slowdown spreads, the OECD says. The organization has revised expansion in its 30 member nations to ``less than 2 percent,'' the weakest since 2003, Secretary General Angel Gurria said in a March 5 interview.

Compared with the U.S., the deceleration in the euro area ``has been less abrupt, but growth is set to remain on the low side of potential for some time,'' Elmeskov said.

The U.S. lost jobs in two consecutive months while retail sales and industrial production are declining. The Federal Reserve has cut its main lending rate six times since August, when the collapse of U.S. subprime mortgages started to infect markets around the world.

Housing Slump

The housing slump ``has got further to go,'' Elmeskov told reporters.

Growth in the Group of Seven industrialized nations will be 0.3 percent in the first quarter and 0.2 percent in the second, the OECD predicted. The nations' growth in 2007 was 2.2 percent.

The Paris-based agency didn't issue updated 2008 growth estimates. It currently sees a U.S. expansion of 2 percent, growth in the euro region of 1.9 percent and 1.6 percent growth in Japan.

Expansion in the 15-nation euro region should be 0.5 percent in the first quarter, spurred by exports and industrial production, before slowing to 0.4 percent in the April-to-June period, the OECD forecast.

European Central Bank Vice President Lucas Papademos said the U.S. Federal Reserve's interest-rate cuts will help to support economic growth in Europe.

`Favorable Impact'

The reduction in U.S. borrowing costs ``will support global economic demand, with a favorable impact on the euro area,'' Papademos said in Moscow today.

Even though there's no credit crunch yet in Europe, banks have ``hardened their lending policies to companies and consumers,'' according to Elmeskov.

The ECB today lent 15 billion euros ($23.2 billion) to banks after the cost of borrowing euros overnight jumped before the Easter weekend. The Bank of England also renewed an offer of emergency short-term funds to banks.

Growth in Europe's service and manufacturing industries slowed more than economists forecast this month, according to a preliminary estimate of Royal Bank of Scotland Group Plc's composite index today. The gauge fell to 51.9 in March from 52.8 in February. Economists expected a decline to 52.4, according to the median of 14 forecasts in a Bloomberg News survey.

Oil prices above $100 a barrel have fanned inflation, which reached a 14-year high in the euro region last month and an annual 4 percent in the U.S.

Further increases in oil and commodity prices are among risks for growth, Elmeskov said. He also said there were doubts on the extent to which slower growth will curtail inflation.

``The extent of any financial turbulence and the magnitude and duration of the restraint exerted on economic activity by banks' and investors' newfound prudence, and by their need to recapitalize, is unclear,'' he said.

To contact the reporter on this story: Sandrine Rastello in Paris at srastello@bloomberg.net

Last Updated: March 20, 2008 09:23 EDT