Eurozone Remains Sluggish as Global Economy Starts to Recover

OECD advanced economies’ GDP projected to rise by 1.2% in 2013, and non-OECD countries will rise by 5.5%.

(May 29, 2013) — More gloomy macro-economic news has arrived from the OECD, after it cut its growth forecasts for the eurozone and called on the European Central Bank to consider doing more to boost growth.

World real GDP is projected to increase by 3.1% this year and by 4% in 2014, but in OECD countries, GDP is projected to rise by just 1.2% this year and by 2.3% in 2014.

By comparison, growth in non-OECD countries is predicted to rise by 5.5% this year and 6.2% in 2014.

“The global economy is strengthening gradually, but the upturn remains weak and uneven,” said OECD Secretary-General Angel Gurría.

“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 last 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.”

We’re not out of the woods yet though: The real economy remains a significant risk for the euro area, and the United States and Japan are still suffering from an absence of credible medium-term consolidation plans, according to the OECD’s latest Economic Outlook report.

In line with many economists, the OECD is concerned about future withdrawal of the existing exceptional monetary policy measures, believing it could lead to instability in financial markets. It also warned of potential bond market instability in the run-up to the unwinding of monetary policy.

The OECD also believes that inflation will rise in the US and Japan, but will remain “very low” across the euro area.

Western economies must focus on measures to enhance growth, make public finances more sustainable and growth-friendly and implement structural reforms to boost investment and create jobs, the OECD continued.

In Europe, bolder measures to solve the financial and banking crisis once and for all are needed to ensure a faster, stronger and more sustainable recovery. Construction of a fully-fledged banking union also needs to be speeded up.

When looking at the UK, the OECD said the government’s austerity plans had affected growth, but said the measures were “necessary” and warned that “further fiscal consolidation” was needed.

Urgent action must also be taken to reduce unemployment, which has risen to dangerous levels in many countries. While labour markets are expected to firm up gradually in the United States and Japan over the next two years, unemployment is likely to continue to rise further in the euro area, stabilising above 12% only in 2014.

The full report can be read here

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