OECD cuts global economic forecasts over euro zone risks

The Organisation for Economic Cooperation and Development slashes its global growth forecasts, says Euro Area will remain in recession until well into 2013.

PARIS, FRANCE (NOVEMBER 27, 2012) (OECD) - The OECD slashed its global growth forecasts on Tuesday (November 27), warning that the debt crisis in the recession-hit euro zone will continue well into 2013 if recovery methods are not put in place.

In light of the dire economic outlook, the Organisation for Economic Cooperation and Development urged central banks to prepare for more exceptional monetary easing if politicians fail to come up with credible answers to the debt crisis.

The Paris-based think-tank forecast in its twice-yearly Economic Outlook that the global economy would grow 2.9 percent this year before expanding 3.4 percent in 2013. The estimate marked a sharp downgrade since the OECD last estimated a rate in May of 3.4 percent for this year and 4.2 percent in 2013.

The euro zone is facing two years of economic contraction, while the United States risk a recession if lawmakers there fail to agree a deal to avoid a combination of tax hikes and budget cuts that will otherwise go into effect next year.

OECD Secretary-General Miguel Angel Gurria said recovery of the OECD area once again faces challenges.

"A hesitant and uneven recovery is projected for the OECD area over the next two years, yet again," Gurria said.

"The Euro Area will remain in or near recession well into 2013. Growth is expected to pick up in the United States and Japan, but only gradually. And a quicker recovery is expected in the emerging market economies," he added.

Providing the deadlock in Washington is overcome, the world's biggest economy will grow 2.0 percent next year, the OECD estimated, cutting its forecast from 2.6 percent in May.

Cutting its estimates, the OECD forecast that the euro zone economy would contract 0.4 percent this year and another 0.1 percent next year, only returning to growth in 2014 with a rate of 1.3 percent.

The OECD warned that diverging financing conditions within the European monetary union threaten to pull it apart if policymakers fail to get a grip on the debt crisis.

Gurria said the Euro Area countries have taken steps to produce a positive economic outlook but that challenges remain.

"Challenges remain to tackle the Euro Area sovereign debt crisis, repair the banking system, foster growth and jobs through structural reforms," Gurria said, adding: "The mechanisms that have been created to manage the crisis including the ECB being allowed to operate in the secondary markets to bring down the yields on the debt of some countries, of course the fiscal union, the talk of the banking union and the discussions leading to that eventually will get there all are very positive."

Gurria closed his statement with a call to action, emphasizing the possibility for a positive outcome if the correct measures are taken.

"This is meant to be a massive wake-up call. A call to go structural, to go social -- not to neglect the victims of the crisis -- to go green, because this is an intergenerational responsibility and the decisions we take today are going to affect the next 30 or 40 years, and to go institutional -- many of our institutions after the crisis require revamping. And if we do not adopt these structural, social, green, institutional measures, we will not be able to avoid the mediocrity, the rather undesirable scenario that we see. We need bold, courageous decisions," he said.