OECD warns of recovery risks to global economy

29 May 13
The global economy faces ‘large’ risks that threaten recovery, the Organisation for Economic Co-operation and Development warned today.

By Richard Johnstone | 29 May 2013

The global economy faces ‘large’ risks that threaten recovery, the Organisation for Economic Co-operation and Development warned today.

In its latest economic forecasts, the international body said possible ‘adverse interactions’ between weak banks and governments remained ‘a significant risk’ following the financial crisis, particularly in the eurozone. In addition, concerns remain over the absence of ‘credible medium-term consolidation plans’ for public spending in both the United States and Japan, according to the May 2013 Economic outlook.

Worldwide gross domestic product is projected to increase by 3.1% this year and by 4% in 2014, the report said, but the risks mean growth could disappoint as the recovery from the global economic crisis continues.

The eurozone is expected to remain in recession for the remainder of 2013, with output set to fall by 0.6%, but it will then grow by 1.1% in 2014. Both these estimates have been revised down since the last report in November, which predicted a contraction of 0.1%.

The deeper recession demonstrates the need for ‘bolder measures’ to solve the financial and banking crisis in the eurozone, with formation of a banking union a priority, the OECD said.

In the US, output is projected to rise by 1.9% this year, and by 2.8% in 2014, while Japan is expected to grow by 1.6% in 2013 and 1.4% in 2014.

The report called on governments across the world to take further steps to make their public finances ‘more sustainable’.

Urgent action is also needed to reduce unemployment, which has risen to ‘dangerous levels’ in some countries, particularly in the eurozone, where more than 12% of the working population is expected to be without a job by 2014.

OECD secretary general Angel Gurría said the global economy was ‘strengthening gradually’, but the analysis showed the upturn remained ‘weak and uneven’.

He added: ‘Supportive monetary policies, improving financial market conditions and a gradual restoration of confidence are at the root of the recovery.

‘Also, the fiscal adjustment of the past few years is beginning to pay off. Several countries are close to stabilising their government debt-to-GDP ratios and ensuring a gradual decline in indebtedness over the longer term.’

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