Eurozone urged to print money to put an end to economic slump

OECD tells the ECB to adopt quantitative easing as it slashes 2013 growth forecast for the single currency area

The eurozone is in a "fragile" condition, and the European Central Bank should start printing money to drag the single currency area out of its protracted slump, the OECD said yesterday.

The call for a shift in policy came as the Paris-based think-tank slashed its 2013 growth forecasts for the euro area and the European Commission confirmed that some recession-ravaged single currency states will be given more time to reduce their budget deficits.

"The situation remains particularly fragile in Europe," said Angel Gurria, the OECD's secretary general. In its twice yearly economic outlook, the OECD said the ECB should consider providing forward guidance on the future course of interest rates and other "non-standard measures", including additional asset purchases.

In November last year, the OECD had forecast that the GDP of the euro area would fall by 0.1 per cent in 2013. Yesterday it increased that to a 0.6 per cent contraction. The eurozone has been in recession since the final quarter of 2011 and shrank by 0.2 per cent in the first quarter of this year. The OECD was forced to revise up its forecasts for contractions in Greece, Italy, Portugal and Spain over 2013.

The organisation now expects a 4.8 per cent contraction in Greece, a 1.8 per cent shrinkage in Italy, a 2.7 per cent decline in Portugal and a 1.7 per cent drop in Spain.

The European powerhouse of Germany is now forecast to grow by 0.4 per cent, down from 0.6 per cent in November. France's outlook was downgraded from 0.3 per cent growth to a 0.3 per cent contraction. The OECD said unemployment across the single currency area would continue to rise, hitting 12.3 per cent in 2014.

In a reflection of the intensification of the eurozone recession, which is adding to welfare bills across the Continent, the European Commission yesterday said that France, Spain, Poland, Portugal, the Netherlands and Slovenia would all be given extra time to reduce their budget deficits to the 3 per cent mandated by the pan-European Fiscal Compact. In its annual commentary on member states' economic plans, the commission said the Netherlands will have until 2014 to bring its deficit below the threshold. Slovenia, France and Portugal will be given until 2015. Spain's target date has been pushed back to 2016.

However, the commission insisted that these extensions should not be taken as an excuse to soft-pedal economic reforms. "Giving more time for certain member states to meet their agreed objectives is designed to enable them to accelerate efforts to put their public finances into order and carry out overdue reforms," it said. "Reform efforts must be stepped up to credibly produce the required outcomes within the new deadlines and excessive deficits must be corrected".

The OECD warned the extended weakness in the European economy "could evolve into stagnation" with negative implications for the rest of the globe. The organisation cut its 2013 growth forecast for growth across the world from 3.4 per cent to 3.1 per cent.

The 2013 growth forecast for the US was reduced marginally from 2 per cent to 1.9 per cent. However, the forecast for Japan was revised up sharply from 0.7 per cent to 1.6 per cent in the wake of Prime Minister Shinzo Abe's reflationary policy shift.

Despite calling for the ECB to enact more monetary stimulus, the OECD warned that the US Federal Reserve should be wary of the potential side effects of its own quantitative easing programme. "Monetary policy should remain accommodative but vigilant, as declining benefits of further quantitative easing are likely at some point to be outweighed by increasing costs in terms of misallocation and excessive risk-taking," it said.

Britain gets OECD approval, but EU wants faster cuts

The OECD marginally downgraded its 2013 and 2014 forecast for the UK yesterday, but also gave its backing to the Coalition's deficit reduction schedule.

It said that the British economy would grow by 0.8 per cent in 2013 and 1.5 per cent in 2014. Last November, it forecast growth in those years of 0.9 per cent and 1.6 per cent respectively.

Unlike the International Monetary Fund, which last week recommended the UK put its deficit reduction programme on pause in the present financial year, the OECD said that George Osborne should stick to his original cuts framework.

"The pace of fiscal consolidation of about 1 per cent of GDP per year in both 2013 and 2014 is appropriate and should be implemented as planned while letting automatic stabilisers operate in the event growth disappoints" it said.

However, in common with the IMF, the OECD recommended the Chancellor should bring forward infrastructure spending to boost growth. It also warned that Mr Osborne's housing subsidy scheme could boost house prices.

The European Commission also delivered its verdict on the Government's fiscal plans yesterday. It advised that the Coalition should speed up its cuts to bring the deficit below 3 per cent of GDP by 2015-16.

Under the Chancellor's present plans, the deficit is not due to fall to that level until 2017-18.

Ben Chu

Start your day with The Independent, sign up for daily news emails
Kim Wilde began gardening in the 1990s when she moved to the countryside
peopleThe singer is leading an appeal for the charity Thrive, which uses the therapy of horticulture
Alexis Sanchez celebrates scoring a second for Arsenal against Reading
Life and Style
An easy-peel potato; Dave Hax has come up with an ingenious method in food preparation
voicesDave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Japan's population is projected to fall dramatically in the next 50 years (Wikimedia)
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own