Eurozone Poses Greatest Risk to Global Economy: OECD
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The global economy is slowing gaining momentum, but the Organisation for Economic Cooperation and Development warns that recovery is extremely uneven across different regions and could be derailed by the crisis in the euro area.
In its twice-yearly economic outlook, the Paris-based Organisation for Economic Cooperation and Development forecast that global growth would ease to 3.4 percent this year from 3.6 percent in 2011, before accelerating to 4.2 percent in 2013, in line with its last estimates from late November.
The global economy is slowing gaining momentum, but the Organisation for Economic Cooperation and Development warns that recovery is extremely uneven across different regions and could be derailed by the crisis in the euro area.
In its twice-yearly economic outlook, the Paris-based Organisation for Economic Cooperation and Development forecast that global growth would ease to 3.4 percent this year from 3.6 percent in 2011, before accelerating to 4.2 percent in 2013, in line with its last estimates from late November.
Calling on the leaders of the 17-nation eurozone to act quickly to avert a severe recession, OECD chief economist Pier Carlo Padoan warned that the eurozone economy could contract as much as 2 percent this year, posing the single largest downside risk for the global outlook.
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Speaking at the launch of the report, OECD Secretary-General Angel Gurria said:
[quote] With slow growth, high unemployment and limited room for manoeuvre regarding macroeconomic policy space, structural reforms are the short-run remedy to spur growth and boost confidence. [/quote]
In Europe, business and household confidence is weak, financial markets are tight and the adverse impacts of fiscal consolidation on near-term growth may be significant, particularly in countries hardest hit by the euro crisis, the OECD said.
While recovery in healthier economies is welcome, the OECD added it is not strong enough to offset flat or negative growth and deleveraging, prompting risks of a vicious circle involving high and rising sovereign indebtedness, weak banking systems, excessive fiscal consolidation and lower growth.
Noting that the “immediate dangers” the eurozone faced last autumn have “receded somewhat”, the dangers, however, have not disappeared.
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In contrast, the Organisation expects the United States economy to expand by 2.4 percent this year and 2.6 percent in 2013.
Writing in the Outlook, Padoan said:
[quote] In the United States, growth should continue to strengthen as confidence is picking up in both businesses and households … More generally, growth seems to be increasingly driven by private sector demand rather than by policy. Fiscal consolidation is dragging growth, but only at a moderate pace … Looking forward, long-term fiscal sustainability remains to be achieved, and a credible fiscal plan is needed to ensure it. Given the still weak recovery and sluggish job creation, monetary policy should remain accommodative, but conditional upon activity developments. [/quote]
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