LONDON — The Organization for Economic Cooperation and Development sharply cut its forecast for the world economy on Tuesday, warning that failure to resolve the euro crisis and to avert a fiscal impasse in the United States could trigger a global recession.
The Paris-based O.E.C.D. predicted that gross domestic product in its 34 member nations, all developed economies, would expand by 1.4 percent in 2013, a significant downward revision from its forecast of 2.2 percent made just six months ago.
That assumes that the United States agrees on a budget deal in January, averting billions of dollars in tax increases and automatic spending cuts.
If that so-called fiscal cliff is not avoided, “a large negative shock could bring the U.S. and the global economy into recession,” according to the forecast, written by Pier Carlo Padoan, the organization’s deputy secretary-general and chief economist.
Even leaving that possibility aside, the O.E.C.D. report makes grim reading, particularly with regard to the 17-nation euro area — which, still mired in recession, is where the “greatest threats to the world economy remain.”
“Challenging fiscal sustainability conditions in some countries risk sparking a chain of events that could considerably harm activity in the monetary union and push the global economy into recession,” the report said.
Highlighting the continuing lack of economic confidence, the report urged European policymakers to accelerate efforts to bolster their single currency through the creation of a banking union.
“Temporary fiscal stimulus should be provided by countries with robust fiscal positions (including Germany and China),” it added.
“Over the recent past, signs of emergence from the crisis have more than once given way to a renewed slowdown or even a double-dip recession in some countries,” the document said, adding that “the risk of a new major contraction cannot be ruled out.”
According to the O.E.C.D., provided the “fiscal cliff” is avoided, the U.S. economy should grow by 2 percent in 2013 and 2.8 percent in 2014. In Japan, G.D.P. is expected to expand by 0.7 percent in 2013 and 0.8 percent in 2014.
The euro area probably will remain in recession until early 2013, leading to a mild contraction in G.D.P. of 0.1 percent next year before growth accelerates to 1.3 percent in 2014.
Labor markets, meanwhile, remain weak, with around 50 million jobless people in the O.E.C.D. area. Unemployment is expected to remain high, or even rise further, in many countries unless structural measures are used to lift employment growth, the report said.
“The world economy is far from being out of the woods,” the O.E.C.D’s secretary-general, Angel Gurría, said in a statement. “Governments must act decisively, using all the tools at their disposal to turn confidence around and boost growth and jobs, in the United States, in Europe, and elsewhere.”
Tom Rogers, a senior economic adviser at Ernst Young, said the report was “consistent with our view that the euro zone faces another year of stagnating economic output and rising unemployment, and that the medium-term recovery is likely to be weaker than from previous recessions.”
Although much has been achieved in stabilizing the euro area, “more needs to be done to deepen the fiscal and banking unions, to improve medium term growth prospects through reform, and to broaden the single market to include trade in services,” Mr. Rogers wrote in a note.
Article source: http://www.nytimes.com/2012/11/28/business/global/oecd-slashing-growth-outlook-warns-of-global-recession.html?partner=rss&emc=rss
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