Global growth is set for a sharp slowdown next year and theeurozone debt crisis “remains the greatest threat to the world economy atpresent,” the OECD warned on Tuesday.
In its latest Economic Outlook, drafted before the eurozoneand IMF unblocked almost 44 billion euros ($57 billion) in emergency loans forGreece, the OECD also cautioned that “the risk of a new major contractioncannot be ruled out” after a global slump in 2009.
The organisation slashed its outlook for the 34-member OECDarea, which includes most of the world's industrialised economies, in 2013 to1.4 percent from a previously expected level of 2.2 percent.
On a global level, the OECD cut the 2012 growth forecast to2.9 percent from 3.4 percent, and its estimate for 2013 to 3.4 percent from 4.2percent.
Another threat to business activity worldwide is apotentially catastrophic budget standoff in the United States, where automatictax increases and spending cuts are to take effect in January unless Democratand Republican lawmakers can come to a compromise.
The world's economic fortunes thus hang next year in largepart on the ability of political leaders in Europe and the US to deal with acrippling combination of unsustainable debt and cramped business activity.
The Organisation for Economic Cooperation and Developmentalso downgraded its growth estimates for this year and next for the UnitedStates and Japan, and its data showed that the eurozone recession could bedeeper than last forecast in May.
The 17-nation bloc is "projected to remain in or nearrecession until well into 2013," the report said.
OECD economies are expected to expand by 1.4 percent in 2012and 2013, and then pick up to a pace of 2.3 percent in 2014.
Unemployment is forecast to rise from 8.0 percent this yearto 8.2 percent in 2013 before easing back to 8.0 percent in 2014.
Inflation should decline from 2.1 percent in 2012 to 1.7percent next year, and then edge up to 1.9 percent in 2014.
"Economic prospects are very uncertain and highlydependent on the risks associated with the nature and timing of policydecisions related to the euro area crisis, (and) the US fiscal cliff,"OECD analysts said in reference to Washington's looming budget deadline.
They pointed to falling household and business confidencethat led to a payoff of debts and said the climate was also morose because"unemployment is set to remain high or even rise further in manycountries."
Emerging economies such as those in Brazil, China and India,which are not OECD members, would fare better, but were nonetheless subject to"spillover from the euro area crisis" that has undermined globaltrade.
"World trade will strengthen only gradually" overthe next two years, the OECD estimated.
A breakdown of its forecasts put growth in the US economy,the world's biggest, at 2.2 percent this year and 2.0 percent in 2013, comparedwith the previous forecast in May of 2.4 and 2.6 percent.
For Japan, gross domestic product (GDP) is now expected toexpand by 1.6 and 0.7 percent this year and next, down from 2.0 and 1.5percent, while the eurozone economy is tipped to contract by 0.4 and 0.1percent.
That compared with the earlier OECD eurozone estimate of aeurozone decline of 0.1 percent this year and growth of 0.9 percent in 2013.
Outside the OECD, growth in Brazil from 2012 to 2014 was putat 1.5, 4.0 and 4.1 percent, in China at 7.5, 8.5 and 8.9 percent, and in Indiaat 4.4, 6.5 and 7.1 percent.
The eurozone should have the highest unemployment, withrates of 11.1 percent and 11.9 percent of the workforce, an increase from theearlier forecasts of 10.8 and 11.1 percent.
To battle against the slowdown, OECD economists called forstronger fiscal stimulus, noting that China and Germany in particular shouldspend more to boost economic activity, as well as monetary stimulus throughso-called quantitative easing.
"Lower interest rates, where possible, and muchstronger additional quantitative easing would be merited in alleconomies," the report said.
Japanese authorities were encouraged to draft more crediblemedium-term budget consolidation measures however, owing to that country's hugepublic debt.
In the eurozone, "a complete bank union is needed forthe long term; direct ESM injections into banks are necessary in the shortterm," the report said in reference to the European Stability Mechanism,the bloc's rescue fund.
In Brussels, a long-awaited deal on aid to Greece wasreached late on Monday, with the eurozone and the International Monetary Fundunblocking 43.7 billion euros in loans and agreeing on the need to grantsignificant debt relief for decades to come.
UniCredit economist Tullia Bucco said: "We think thatGreece will eventually need a much larger debt relief but any agreement on thisis unlikely to happen before German elections next fall."
