OECD Warns of 'Severe Recession' Looming for Eurozone

OECD Warns of 'Severe Recession' Looming for EurozoneBy GREG KELLER

PARIS -- The 17-country eurozone risks falling into a "severe recession," the Organization for Economic Cooperation and Development warned on Tuesday, as it called on governments and Europe's central bank to act quickly to keep the slowdown from dragging down the global economy.

OECD Chief Economist Pier Carlo Padoan warned the eurozone economy could contract by as much as 2% this year, a figure that the Paris-based think tank had laid out as its worst-case scenario in November.

In its twice-yearly global economic outlook, the OECD -- which comprises the world's most developed economies -- said its average forecast was for the eurozone economy to shrink 0.1% this year and grow a mere 0.9% in 2013.

"Today we see the situation in the euro area close to the possible downside scenario" in the OECD's November report, "which if materializing could lead to a severe recession in the euro area and with spillovers in the rest of the world," Padoan told reporters before the report's release.

The report forecasts the nations of Europe falling further behind other countries, particularly the United States, whose economy is expected to grow 2.4% this year and 2.6% next.

"There is now a diverging trend between the euro area and the U.S., where the U.S. is picking up more strongly while the euro area is lagging behind," Padoan said.

Europe itself is increasingly split between a wealthier north continuing to grow and a southern rim that is sliding deeper into recession, the OECD figures show.

Germany, Europe's largest economy, will accelerate to 2% growth next year after 1.2% growth in 2012, while France, the eurozone's second-largest economy, will expand 1.2% next year after 0.6% growth this year, the OECD said.

Italy's economy, by contrast, will shrink 1.7% this year and 0.4% in 2013, the OECD forecast. Spain is also set to remain mired in recession, with contraction of 1.6% this year and 0.8% next.

Padoan called on eurozone leaders to adopt a "growth compact" to promote growth even while reducing deficits. French President Francois Hollande has made securing such a pact the focus of his European diplomacy in the first weeks of his administration.

So-called eurobonds -- debt issued jointly by countries in the currency bloc -- could be used to recapitalize banks, Padoan said. He also reiterated his call of six months ago for the ECB to do more to stem Europe's crisis.

The ECB has an "essential" role to play in solving Europe's crisis, Padoan said, both by using its balance sheet firepower to shore up banks and by lowering interest rates. The ECB should also consider renewing the "unconventional measures" it used last year such as buying up government bonds, "if there is need to cope with contagion problems," Padoan said.

Asian economies will also do better than Europe, the OECD predicted. Japan is forecast to grow 2% this year and slow down to 1.5% in 2013, while China is expected to accelerate from 8.2% to 9.3%.

Despite their growth downgrades for Europe, the OECD's figures are more optimistic than those of the International Monetary Fund. Last month the IMF predicted Europe's economy would shrink 0.3% this year, with the U.S. expanding 2.1%.


Increase your money and finance knowledge from home

What is Inflation?

Why do prices go up?

View Course »

Socially Responsible Investing

Invest in companies with a conscience.

View Course »

Add a Comment

*0 / 3000 Character Maximum

56 Comments

Filter by:
PBanks

The recession in the Eurozone is and will expand, just like the folks in the U.S., there is so many jobs to go around. The youth and older workers will have to make the same decisions we will have to. From the age we retire and the youth (college grads), will eventually have to pay the bills (taxes). That is the money that is loaned from IMF. The U.S. Borrowing from China, to get the junk money out Wall Street, and start paying down our debt. They haven't solved the problems of Greece, Spain and Italy. Or the other nations, they have agreed to let into their organization of governments in the Eurozone.

July 18 2012 at 6:14 PM Report abuse rate up rate down Reply
ha6ai

The U.S. is well on the way dOwnward (not "forward") because of Obama's disastrous policies But why is there NO reporting on the BIG news:

Big News: 43 MAJOR CATHOLIC ORGANIZATIONS SUE OBAMA to stop Obamacare trampling on Religious Freedom!

Obama forcing Catholics to pay for and provide abortion on demand (including late-term abortions where legal), abortion pills, sterilization, and contraception, is a an un-American fascist attack on the First Amendment, and Freedom of Religion!

Religious freedom is under attack by Obama.

Have you heard about these law suits? WHERE is this reported by the left-wing media?

May 24 2012 at 3:00 AM Report abuse +1 rate up rate down Reply
ha6ai

The U.S. is well on the way dOwnward (not "forward") because of Obama's disastrous policies But why is there NO reporting on the BIG news:

Big News: 43 MAJOR CATHOLIC ORGANIZATIONS SUE OBAMA to stop Obamacare trampling on Religious Freedom!

Obama forcing Catholics to pay for and provide abortion on demand (including late-term abortions where legal), abortion pills, sterilization, and contraception, is a an un-American fascist attack on the First Amendment, and Freedom of Religion!

Religious freedom is under attack by Obama.

Have you heard about these law suits? WHERE is this reported by the left-wing media?

May 24 2012 at 2:59 AM Report abuse rate up rate down Reply
Dee

like Ray replied I am amazed that a mother able to profit $4635 in 1 month on the computer. did you read this page NuttyRich.com

May 23 2012 at 12:43 PM Report abuse rate up rate down Reply
warbaby

I do not see how this can be happening The Fed has generously handed over trillions of the working taxpayers in America. Oh are they having management problems too???

May 22 2012 at 10:27 PM Report abuse +1 rate up rate down Reply
dr scott kanner

1.6 Quadrillion in derivatives worldwide...1600 trillions...incomphrehensible

May 22 2012 at 6:45 PM Report abuse rate up rate down Reply
janeambercrombny

The "Brics" have told Obama, Bernanke and Geithner,"if you launch a QE3, We will dump our U.S. notes"..So, there it is, there will be no QE3,no more casino money,and, no way to kick the can down the road anymore. My garden is looking more valuable all the time.

May 22 2012 at 3:55 PM Report abuse +3 rate up rate down Reply
1 reply to janeambercrombny's comment
itacurubi

From the contents of your post, you appear to be smoking more than a a bit what your garden grows.

May 22 2012 at 5:12 PM Report abuse -1 rate up rate down Reply
dogcplayers

CHANGE WILLCOME TO AMERICA WITH ROMNEY, NOT WITH YET ANOTHER INFESTED PRESIDENTIAL ADMINISTRATION AT THE HELM OF THE USA.

May 22 2012 at 3:49 PM Report abuse +2 rate up rate down Reply
George

OECD says things are going to get tougher in europe and down goes WS. Probably go back up as soon as the muslim socialist prez gets his chicago mafia czar to print more of that worthless paper. "sasha" - be prepared because things will get worse by election time regardless of which party you want to blame. Criminals guarding the money-house never work for honest hard working people.

May 22 2012 at 3:38 PM Report abuse -1 rate up rate down Reply
2 replies to George's comment
ensgavry

bernanke can't print any more toilet paper , no "QE3" or a lot of counttries may stop using the paper.

May 22 2012 at 3:42 PM Report abuse +3 rate up rate down Reply
2 replies to ensgavry's comment
connieusa27

this is the way we launder your economy, launder your economy,..... sung to the tune of mulberry bush lol

May 22 2012 at 3:45 PM Report abuse +1 rate up rate down
itacurubi

The money supply has grown at a quite slow reate since Obama took office. The Fed's QEs have had a tough time keeping up with loan contraction in the banks, the locus of most money creation. You're all wet in the monetary department.

May 22 2012 at 5:15 PM Report abuse -1 rate up rate down
connieusa27

Ouch! Next time I'm gonna vote Repubodem! lol Paul wpuld rather be right tan President, and not a sellout like your 2 "choices."

May 22 2012 at 3:46 PM Report abuse +4 rate up rate down Reply
JimBrade

Credit is nothing more than a house of cards. You keep adding to it, and adding to it, and at some point, the house of cards collapses under its' own weight. It doesn't take a Harvard graduate to figure that out.

May 22 2012 at 3:37 PM Report abuse +4 rate up rate down Reply
1 reply to JimBrade's comment
cpo1514

Jim,

Problem is this Community Organizer majored in 'fairness law' (Socialism). Economics , Accounting, Business class are in conflict with the limitless supply of using 'other peoples money" and Barry never took the classes.... also cannot understand the cause & effect of debt.

OMG OBAMA MUST GO !!!!!!!!

May 23 2012 at 8:49 AM Report abuse +1 rate up rate down Reply