PARIS (AFP) – The sickly eurozone recovery is a drag on the outlook for the global economy, the OECD warned on Monday as it cut growth forecasts for most major advanced economies.
The sluggish recovery is also at risk from increased tension over conflicts in Ukraine and the Middle East, and uncertainty over the future of Scotland, the Organisation for Economic Cooperation and Development said.
“Continued slow growth in the euro area is the most worrying feature of the projections,” the OECD said, as it updated its forecasts for major economies.
It chopped by a third its 2014 forecast to 0.8 per cent from the 1.2 per cent expansion it had projected in May.
While it said the moderate US economic expansion remains broadly on track, the OECD cut the 2014 forecast by a fifth to 2.1 per cent from 2.6 per cent.
File photo of Organization for Economic Cooperation and Development (OECD). The sickly eurozone recovery is a drag on the outlook for the global economy, the OECD warned on Monday as it cut growth forecasts for most major advanced economies – EPA
Japan’s forecast was cut by a quarter, to 0.9 per cent from 1.2 per cent, although the OECD said it expected the underlying recovery in the economy to reassert itself following the dent to growth caused by an April sales tax increase.
Non-eurozone Britain saw its forecast trimmed by 0.1 points to 3.1 per cent.
The OECD did not provide an update to its forecast for global growth this year, which it forecast at 3.4 per cent in May.
Among the major emerging economies which are not OECD members, China’s forecast was held steady at 7.4 per cent. The OECD said the world’s number two economy “has so far managed to achieve an orderly growth slowdown to more sustainable rates.”
It slashed the forecast to Brazil to 0.3 per cent growth in 2014 from 1.8 per cent after the country fell into recession in the first half of this year.
India was the sole gainer, with the OECD lifting its forecast to 5.7 per cent from 4.9 per cent thanks to a boost of confidence in the country that the new government will pursue growth-oriented reforms and progress in containing inflation.
Inflation is also a concern in the eurozone, but in contrast to India, prices have been rising too slowly or have been falling.
“The possibility that euro area inflation will stay low and exacerbate weak demand is a key risk,” said the OECD, calling for “more vigorous monetary stimulus”.
The European Central Bank stepped up its support for the eurozone economy at the start of September, lowering interest rates and announcing it would inject money into the economy by buying up asset-backed securities after eurozone inflation touched 0.3 per cent in August.
The eurozone economy failed to grow at all in the second quarter, after posting an anaemic expansion of 0.2 per cent in the first quarter.
“Excessively low inflation makes it more difficult to achieve the relative price adjustments that remain necessary to rebalance euro area demand without having to endure a prolonged period of slow growth and high unemployment,” warned the OECD.
The OECD forecast of 0.8 per cent growth is below the 0.9 per cent forecast the ECB made at the beginning of the month.