Call for G20 leaders to be bold

 

Bold action needs to be taken at the G20 summit this week to stave off the threat of another recession in Europe, a leading think-tank has warned.

The Organisation for Economic Co-operation and Development (OECD) slashed its growth forecasts for some of the world's biggest economies and said "without decisive action the outlook is gloomy".

In a rallying cry before the world's 20 richest nations meet in Cannes on Thursday, OECD secretary general Angel Gurria called on politicians to implement the eurozone rescue package sketched out last week "promptly and forcefully".

Meanwhile, the Treasury backed calls for the eurozone rescue deal to be properly implemented and claimed its austerity measures left the UK in a stronger position.

Mr Gurria warned of a "marked slowdown" in the eurozone area, with "patches of mild negative growth" likely in 2012 and said more bold decisions were needed to get the world economy back on track.

The OECD said economic growth in the eurozone will slow to 0.3% next year after 1.6% growth this year, and will remain weak in the US while emerging markets will see slower growth than before the financial crisis began.

Overall, growth in the G20 nations will slow to 3.8% in 2012, compared to 3.9% this year, although it should accelerate to 4.6% in 2013.

The OECD added that the scenario could be worse if the eurozone rescue deal fails to restore confidence in markets.

Last week EU leaders agreed with banks a 50% "haircut" on Greek debt and to boost the eurozone bailout fund to one trillion euro (£880 billion), which follows an earlier decision to shore up banks' finances.

A repeat of the financial crisis of 2007 could wipe 5% off major economies' GDP by the first half of 2013, the OECD added.

But it said a radical action plan by the G20 could help boost growth above its projections.

G20 nations need to make structural reforms to address unemployment and rebalance global demand, while interest rates in the eurozone should be lowered under new president Mario Draghi, the OECD added.

And it warned that the outlook would be gloomier if commitments made by EU leaders fail to restore confidence in the markets and one of the member countries defaults on its debts.

A spokesman for the Treasury said: "Good progress has been made recently by the eurozone to address the conditions it faces and, as the OECD states, it is important that this momentum is maintained.

"In this time of international uncertainty, the Government's action to tackle the deficit has put the UK ahead of the curve and is helping to mitigate against the risks that are weighing down on confidence elsewhere."

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