PARIS–The recession in Europe risks threatening the world's economic recovery, a leading international body warned yesterday.In its half-yearly update, the Organisation for Economic Cooperation and Development (OECD) said that protracted economic weakness in Europe "could evolve into stagnation with negative implications for the global economy."
The OECD again slashed its forecast for the 17 European Union countries that use the euro, saying it will shrink by 0.6 per cent this year, after 0.5 per cent drop in 2012. The OECD had predicted a 0.1 per cent decline for the eurozone in its report six months ago–and this time last year, it forecast growth of nearly 1 per cent for 2013.
The US economy will continue to outpace Europe, the OECD said, with growth of 1.9 per cent in 2013 and 2.8 per cent in 2014. For global gross domestic product, the OECD forecasts an increase of 3.1 per cent for this year and by four per cent for 2014.Noting that eurozone policymakers have "often been behind the curve," the OECD warned that Europe was still beset by "weakly capitalised banks, public debt financing requirements and exit risks."
Meanwhile, the eurozone's 12.1 per cent unemployment "is likely to continue to rise further...stabilising at a very high level only in 2014," the OECD said.The OECD report predicts unemployment will reach 28 per cent in Spain next year and 28.4 per cent in Greece.The eurozone economy shrank 0.2 per cent in the January-March period, the sixth consecutive quarterly decline, making it the eurozone's longest ever recession.
Austerity measures have inflicted severe economic pain and sparked social unrest across the continent. Europe's young people are especially suffering, with unemployment of around 50 per cent in some of the hardest-hit eurozone countries such as Spain and Greece.But OECD Secretary-General Angel Gurria also noted that the tough reforms that those countries–to loosen their labour markets and make their public administrations more efficient–will soon bear fruit.
"In the periphery in particular, which was hardest hit by the crisis, that is where the reforms are taking place at the faster pace and where things eventually are, I believe, going to be looking better faster once we go through the acute stage of the crisis," Gurria told reporters.
With a population of more than half a billion, the EU is the world's largest export market. If it remains stuck in reverse, companies in the US and Asia will be hit.