OECD Cuts Global Growth Forecasts
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The Organisation for Economic Cooperation and Development has lowered its growth forecasts for 2013, warning that the world economy could easily slip into recession if the US and the eurozone’s fiscal problems are not resolved quickly.
In an unusually alarming report, the Paris-based OECD warned that the world economy is at risk of a “major” global recession if policymakers fail to restore market confidence and singled out the debt crisis in recession-hit eurozone as the largest threat to global markets.
The Organisation for Economic Cooperation and Development has lowered its growth forecasts for 2013, warning that the world economy could easily slip into recession if the US and the eurozone’s fiscal problems are not resolved quickly.
In an unusually alarming report, the Paris-based OECD warned that the world economy is at risk of a “major” global recession if policymakers fail to restore market confidence and singled out the debt crisis in recession-hit eurozone as the largest threat to global markets.
In its twice-yearly Economic Outlook update, the OECD said that the global economy would grow 2.9 percent this year before expanding 3.4 percent in 2013 – a sharp downgrade from its May estimates of 3.4 percent in 2012 and 4.2 percent in 2013.
US gross domestic product will rise 2.2 percent this year and 2 percent in 2013, down from May predictions of 2.4 percent and 2.6 percent in 2012 and 2013 respectively, according to the report.
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The euro area, on the other hand, will shrink 0.4 percent and 0.1 percent in those years, compared with a 0.1 percent 2012 contraction and 0.9 percent 2013 growth estimated in May.
The OECD said:
[quote] After five years, the global economy is weakening again. The risk of a major contraction cannot be ruled out. [/quote]
In its report, the OECD cautioned the US and Europe against cutting spending too sharply and too quickly, saying that could further jeopardise growth and recovery prospects.
At the same time, it suggested that central banks cut interest rates and provide “much stronger additional quantitative easing” if the global economy contracts and urged countries “with robust fiscal positions, including Germany and China,” to provide temporary fiscal stimulus to boost growth.
“The world economy is far from being out of the woods,” OECD Secretary-General Angel Gurria said. “Governments must act decisively, using all the tools at their disposal to turn confidence around and boost growth and jobs in the United States, Europe and elsewhere.”
Asia, however, will remain a bright spot in the world economy and continue to power the global engine of growth, said the OECD.
Both India and China are expected to stabilise and accelerate briskly in the next two years while growth rates in the other BRIC nations are expected to remain strong thanks to supportive monetary and fiscal policies, the OECD said.
South-East Asia, in particular, is expected to return to a “robust” pre-crisis average growth rate of 5.5 percent over the next five years, driven by an expansion of the middle class that is “likely to continue to boost domestic demand.”
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