Europe weigh­ing on global econ­omy: OECD

The Pak Banker - - Front Page -


The world’s eco­nomic re­cov­ery will be “hes­i­tant and un­even” next year, with Europe’s debt trou­bles weigh­ing on more vi­brant economies such as the U.S. and in the de­vel­op­ing world, a lead­ing in­ter­na­tional eco­nomic body said on Wed­nes­day.

Even so, the Or­gan­i­sa­tion for Eco­nomic Co­op­er­a­tion and Devel­op­ment said it ex­pects the world econ­omy to grow by 3.4 per­cent next year, up from 2.9 per­cent. The pro­jected ad­vance masks big di­ver­gences around the world.

The Paris-based agency said it is gloomier about Europe than it was six months ago in its last up­date. It now pre­dicts a 0.4 per­cent con­trac­tion this year for the 17-coun­try eu­ro­zone and a 0.1 per­cent fall next year. In May, the OECD forecast the eu­ro­zone econ­omy to shrink just 0.1 per­cent this year and grow 0.9 per­cent in 2013. It also down­graded fore­casts for the U.S. econ­omy, pre­dict­ing 2 per­cent growth next year, com­pared to 2.6 per cent forecast for 2013 in the last eco­nomic out­look in May.

The OECD also cau­tioned that growth out­side the OECD which com­prises 34 devel­oped economies mostly in North Amer­ica and Europe — would be slightly faster but crimped by Europe’s trou­bles.

“A slow­down has sur­faced in many emerg­ing mar­ket economies, partly re­flect­ing the im­pact of the re­ces­sion in Europe,” the report said.

The OECD also warned the U.S. and Europe against cut­ting spend­ing too sharply and too quickly, say­ing that could fur­ther hurt growth prospects.

“Global prospects re­main frag­ile, with strong down­side risks, and are heav­ily de­pen­dent on the speed and de­ci­sive­ness of pol­icy ac­tions,” it said.

It also warned that un­em­ploy­ment would con­tinue to rise in the eu­ro­zone from 11.1 per cent this year to 12 per cent in 2014, but that the rate in the U.S. would grad­u­ally de­cline to 7.5 per cent in 2014. The glum report came de­spite signs that the eu­ro­zone cri­sis is ebbing. World mar­kets rose Tues­day hours af­ter Greece’s euro part­ners and the In­ter­na­tional Mon­e­tary agreed to hand over more bailout cash to the coun­try. There had been fears that Greece might be forced to leave the euro, po­ten­tially desta­bi­liz­ing the world econ­omy.

The OECD warned that more needs to be done to link eu­ro­zone economies closer to­gether and said progress to­ward a bank­ing union is “es­sen­tial” to sta­bil­is­ing the euro.

It warned that if the Euro­pean cri­sis doesn’t sta­bilise it could plunge the world econ­omy into deep re­ces­sion. “The risk of a ma­jor con­trac­tion can­not be ruled out.”

It also ex­pressed con­cerned about the so-called fis­cal cliff in the U.S., au­to­matic tax in­creases and steep spend­ing cuts that take ef­fect in Jan­uary un­less Pres­i­dent Barack Obama and Congress reach a bud­get agree­ment.

“If the fis­cal cliff is not avoided, a large neg­a­tive shock could bring the U.S. and the global econ­omy into re­ces­sion,” the report said.

It sug­gested that coun­tries with stronger economies such as Ger­many and China could pro­vide tem­po­rary fis­cal stim­u­lus to boost growth.

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