Recession in Europe could jeopardise global recovery: OECD

The Organization for Economic Cooperation and Development (OECD) has warned that recession in Europe could jeopardise the world's economic recovery.

The OECD again slashed its forecast for the 17 EU countries that use the euro, and said growth i would shrink by 0.6 per cent this year, on the back of a 0.5 per cent drop in 2012.

The agency said in its half-yearly update, that protracted economic weakness in Europe "could evolve into stagnation with negative implications for the global economy".

The eurozone economy shrunk 0.2 per cent in the January-March period, the sixth consecutive quarterly decline, which made it the longest ever recession for the zone.

The OECD had projected a 0.1 per cent decline for the eurozone in its report six months back and at this time last year, it forecast growth of around 1 per cent for 2013.

According to the OECD, the US economy would continue to outpace Europe, with a 1.9 per cent growth in 2013 and 2.8 per cent in 2014. The OECD projects a global gross domestic product, increase of 3.1 per cent for this year and 4 per cent for 2014.

Noting that Eurozone policymakers had "often been behind the curve", the OECD warned that Europe was still beset by "weakly capitalised banks, public debt financing requirements and exit risks".

The Paris-based agency warned that a long and bumpy recovery in the eurozone would continue to hurt exports while the government's deficit reduction programme and the paying down of consumer debt would serve to hamper growth.

It added, the economy would increase by a more restricted 1.5 per cent in 2014, down from its previous forecast of a stronger 1.6 per cent increase in output.

"The muted global recovery, especially in Europe, and the necessary adjustment of still-impaired public and private sector balance sheets continue to weigh on growth," the thinktank said in its economic outlook.

The OECD, with 34 rich country members, added that despite the labour market picking up, consumer spending continued to be restrained by weak average real earnings, fragile confidence and a determination among many households to reduce their overall debts.

It added, private investment, a key driver of long-term growth, was also being held back by weak demand and "high uncertainty".

The OECD, though, supported George Osborne's plans for further spending cuts, saying, "With a high budget deficit and gross government debt rising to 90 per cent of GDP in 2012, further fiscal consolidation is necessary to restore the sustainability of public finances."