Eurozone puts top economies on edge of recession: OECD

AFP, Monday 28 Nov 2011

One false step could tip the US, Japan and other advances economies into the abyss, cautions the fiscal body

The eurozone crisis is now one step away from plunging advanced economies into an abysss of recession and even depression, with waves of bankruptcies and wealth destruction in Europe, the OECD warned on Monday.

The eurozone is already in slight recession and the credibility of governments to keep the eurozone balanced on a high wire has been stretched to the limit: one false step now could tip the United States, Japan and advanced economies into a new grim landscape.
 
Excessively tight fiscal policy is sending the US economy towards stagnation, the OECD warned a week after failure of congressional efforts to broker a deal on spending cuts and stimulus measures.
 
"The euro area crisis represents the key risk to the world economy at present," the OECD said in an unusually stark outlook report. "A large negative event would... most likely send the OECD area as a whole into recession."
 
Even if policymakers manage to avoid the worst, the eurozone is in for a brief recession and the United States for a period of slow growth, with emerging countries also hit.
 
China will slow but still show strong growth with moderate inflation.
 
But the OECD, forecasting OECD-area growth of 1.9 per cent this year and 1.6 per cent next year, said that if US fiscal policy were eased US growth would be 1.7 per cent in 2011 and 2.0 per cent in 2012.
 
The eurozone was set for growth of 1.6 per cent this year and next year just 0.2 percent, the OECD said, but also stressed there was still time for decisive action by policymakers to shore up stricken credibility and avert a far worse outlook.
 
The European Central Bank should buy up devalued government debt bonds in huge quantities and interest rates must fall, the OECD said, taking the opposite line to Germany which has so far rejected extra bond purchases, arguing that the priority is for countries in trouble to reform their economies.
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