Recession 'taking hold' in eurozone: OECD

6 Sep 2012, 8:43 pm   -   Source: AAP

The OECD says the eurozone debt crisis will lead to recession in the economic region unless measures are taking to stem the problem.

Europe's debt crisis is pushing the 17-country eurozone towards recession and dragging down the global economy, the Organisation for Economic Co-operation and Development (OECD) says.

Even growth in traditional economic powerhouse Germany is slowing, and the OECD's interim assessment of the global economic outlook, which was released on Thursday, said Europe's largest economy could slip into recession by the end of the year.

Still, OECD chief economist Pier Carlo Padoan said that he was "encouraged" by recent progress in Europe to control the crisis.

He noted that more needs to be done, and said he is waiting "anxiously" for details on the European Central Bank's (ECB) plan to buy up the bonds of governments struggling with high borrowing costs.

The ECB is expected to outline a plan later on Thursday.

High borrowing rates are at the heart of the European crisis and have forced several countries to seek bailout loans.

Now, larger economies, such as Italy and Spain, are suffering high rates.

Many experts worry that Europe can't afford to rescue them but also can't afford to let them fail.

In May, the OECD, which monitors economic trends for the world's most developed economies, said that the 17-country eurozone could contract by as much as two per cent this year.

Thursday's assessment didn't offer a comparable prediction, and Padoan wouldn't say if he thought such a severe contraction was likely.

Instead, the report says a recession is "taking hold" in the eurozone and predicts the three largest economies that use the euro - Germany, France and Italy - will shrink by 0.2 per cent this year.

For Germany, it predicted an annualised contraction of 0.5 per cent in the third quarter and of 0.8 per cent in the fourth.

According to the statistics agency Eurostat, the eurozone economy shrank 0.2 per cent in the second quarter of the year after growth was flat in the first quarter.

A recession is defined as two consecutive quarters of negative growth.

The interim report said it expects the US to grow 2.3 per cent this year, just off its May prediction of 2.4 per cent.

Padoan warned that significant uncertainty marks the organisation's predictions and that the global economy faces several risks that could further drag down growth.

The largest is the European response to its debt crisis, which is most responsible for the poor outlook.

Padoan also cited the so-called "fiscal cliff" in the US, a reference to the end of the year when a series of tax increases and spending cuts takes effect.

Saying that the "global economy has weakened since spring", the OECD trimmed its growth forecasts for some of the world's top economies.

It lowered its 2012 growth forecast for Germany to 0.8 per cent from 1.2 per cent and to 0.1 per cent from 0.6 per cent for France, while Italy's economy is now expected to contract by 2.4 per cent instead of 1.7 per cent.

Outside the eurozone, Britain's economy is now expected to contract by 0.7 per cent instead of growing by 0.5 per cent.

The US is now seen as growing by 2.3 per cent this year instead of 2.4 per cent and Canada by 1.9 per cent rather than 2.2 per cent.

Japan's economy on the other hand is expected to grow by 2.2 per cent instead of 2.0 per cent thanks to post-disaster reconstruction.

  • Follow us: 
  • Follow us on Facebook
  • Follow us on Twitter
  • Follow us on Youtube