The OECD has cut its growth forecasts as it warned of the risk of a "major" global recession and urged the European Central Bank and the People's Bank of China to ease monetary policy.
"After five years of crisis, the global economy is weakening again," chief economist Pier Carlo Padoan said yesterday in the Organisation for Economic Co-operation and Development's semi-annual Economic Outlook. "The risk of a major contraction cannot be ruled out."
United States gross domestic product will rise 2.2 per cent this year and 2 per cent in 2013, less than the 2.4 per cent and 2.6 per cent which was forecast in May, the report says. The euro zone will shrink 0.4 per cent and 0.1 per cent, respectively, compared with the 0.1 per cent contraction and 0.9 per cent growth predicted then.
The Paris-based OECD, which advises its 34 member governments on economic policy, highlighted the risks posed to global growth at a time when US lawmakers are trying to avoid the so-called fiscal cliff of tax increases and spending cuts and euro nations are saddled with a recession and a debt crisis that is now in its fourth year.
The OECD also warned of the situation in the euro zone, where finance ministers eased the terms on emergency aid for Greece yesterday.
"If the fiscal cliff is not avoided, a large negative shock could bring the US and the global economy into recession," Padoan said. "In the euro area, where the greatest threats to the world economy remain," governments have made progress, though problems of debt sustainability in some countries "risk sparking a chain of events" that could push the global economy into recession, he said.
The OECD countries combined will grow 1.4 per cent this year and next, less than the 1.6 per cent and 2.2 per cent predicted earlier. The group will grow 2.3 per cent in 2014, with expansions of 2.8 per cent in the US and 1.3 per cent in the euro zone, the OECD said in its first forecasts for that year. Achieving that longer-term forecast depends on heading off a global recession now, the report said.
"Additional easing is required in the euro area, Japan and some emerging market economies, including China and India," the OECD said. "If serious downside risks were to materialise, further policy support would be essential," including additional quantitative easing and temporary fiscal stimulus by countries "with robust fiscal positions, including Germany and China," it said.
Britain's GDP will fall 0.1 per cent this year and grow 0.9 per cent next, the OECD said.
"The Bank of England is providing significant support to the economy through quantitative easing, which should continue," it said. "With the fiscal deficit and public debt still high, the policy of fiscal consolidation remains appropriate."