PARIS: Global growth is set for a sharp slowdown next year and the eurozone debt crisis “remains the greatest threat to the world economy at present,” the OECD warned yesterday.
In its latest Economic Outlook, drafted before the eurozone and IMF unblocked almost ¤44bn ($57bn) in emergency loans for Greece, the OECD also cautioned that “the risk of a new major contraction cannot be ruled out” after a global slump in 2009.
The organisation slashed its outlook for the 34-member OECD area, which includes most of the world’s industrialised economies, in 2013 to 1.4 percent from a previously expected level of 2.2 percent.
On a global level, the OECD cut the 2012 growth forecast to 2.9 percent from 3.4 percent, and its estimate for 2013 to 3.4 percent from 4.2 percent. Another threat to business activity worldwide is a potentially catastrophic budget standoff in the United States, where automatic tax increases and spending cuts are to take effect in January unless Democrat and Republican lawmakers can come to a compromise.
The world’s economic fortunes thus hang next year in large part on the ability of political leaders in Europe and the US to deal with a crippling combination of unsustainable debt and cramped business activity.
The Organisation for Economic Cooperation and Development also downgraded its growth estimates for this year and next for the United States and Japan, and its data showed that the eurozone recession could be deeper than last forecast in May. The 17-nation bloc is “projected to remain in or near recession until well into 2013,” the report said.
OECD economies are expected to expand by 1.4 percent in 2012 and 2013, and then pick up to a pace of 2.3 percent in 2014.
Unemployment is forecast to rise from 8.0 percent this year to 8.2 percent in 2013 before easing back to 8.0 percent in 2014.
Inflation should decline from 2.1 percent in 2012 to 1.7 percent next year, and then edge up to 1.9 percent in 2014.
“Economic prospects are very uncertain and highly dependent on the risks associated with the nature and timing of policy decisions related to the euro area crisis, (and) the US fiscal cliff,” OECD analysts said in reference to Washington’s looming budget deadline.
They pointed to falling household and business confidence that led to a payoff of debts and said the climate was also morose because “unemployment is set to remain high or even rise further in many countries.”
Emerging economies such as those in Brazil, China and India, which are not OECD members, would fare better, but were nonetheless subject to “spillover from the euro area crisis” that has undermined global trade.
“World trade will strengthen only gradually” over the next two years, the OECD estimated.
A breakdown of its forecasts put growth in the US economy, the world’s biggest, at 2.2 percent this year and 2.0 percent in 2013, compared with the previous forecast in May of 2.4 and 2.6 percent.
For Japan, gross domestic product (GDP) is now expected to expand by 1.6 and 0.7 percent this year and next, down from 2.0 and 1.5 percent, while the eurozone economy is tipped to contract by 0.4 and 0.1 percent.
That compared with the earlier OECD eurozone estimate of a eurozone decline of 0.1 percent this year and growth of 0.9 percent in 2013.
Outside the OECD, growth in Brazil from 2012 to 2014 was put at 1.5, 4.0 and 4.1 percent, in China at 7.5, 8.5 and 8.9 percent, and in India at 4.4, 6.5 and 7.1 percent.
The eurozone should have the highest unemployment, with rates of 11.1 percent and 11.9 percent of the workforce, an increase from the earlier forecasts of 10.8 and 11.1 percent.