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

News
people

Actress sees off speculation about her appearance in an amazing way

Arts and Entertainment
Serge Pizzorno of Kasabian and Noel Fielding backstage at the Teenage Cancer Trust concerts
musicKasabian and Noel Fielding attack 'boring' musicians
News
peopleLynda Bellingham's tragic final Loose Women appearance moves audience to tears
Arts and Entertainment
'Right Here' singer Jess Glynne is nominated for Best Newcomer at the MOBO Awards 2014
musicExclusive: Jess Glynne hits out at 'ridiculous' criticism of white artists nominated for Mobo Awards
PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Separated at birth? Frank Sivero (left) claims The Simpsons based Mafia character Louie on his Goodfellas character
arts + entsFrank Sivero sues Simpsons studio over allegedly basing mobster character on Frank Carbone
News
Carl Bernstein (left) and Bob Woodward (right) with former 'Washington Post' executive editor Ben Bradlee
people

The Washington Post editor helped Bob Woodward and Carl Bernstein bring down President Nixon

News
news

Voices
Stephanie first after her public appearance as a woman at Rad Fest 2014
voices

Arts and Entertainment
Laura Wood, winner of the Montegrappa Scholastic Prize for New Children’s Writing
books

Children's bookseller wins The Independent's new author search

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

Trainee Recruitment Consultant Birmingham

£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

Trainee Recruitment Consultants

£20000 - £25000 per annum + OTE £Competitive: SThree: SThree Group and have be...

Helpdesk Analyst

£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

Day In a Page

Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Ed Sheeran hits back after being labelled too boring to headline festivals

'You need me, I don’t need you'

Ed Sheeran hits back after being labelled too boring to headline festivals
How to Get Away with Murder: Shonda Rhimes reinvents the legal drama

How to Get Away with Murder

Shonda Rhimes reinvents the legal drama
A cup of tea is every worker's right

Hard to swallow

Three hospitals in Leicester have banned their staff from drinking tea and coffee in public areas. Christopher Hirst explains why he thinks that a cuppa is every worker's right
Which animals are nearly extinct?

Which animals are nearly extinct?

Conservationists in Kenya are in mourning after the death of a white northern rhino, which has left the species with a single male. These are the other species on the brink
12 best children's shoes

Perfect for leaf-kicking: 12 best children's shoes

Find footwear perfect to keep kids' feet protected this autumn
Anderlecht vs Arsenal: Gunners' ray of light Aaron Ramsey shines again

Arsenal’s ray of light ready to shine again

Aaron Ramsey’s injury record has prompted a club investigation. For now, the midfielder is just happy to be fit to face Anderlecht in the Champions League
Comment: David Moyes' show of sensitivity thrown back in his face by former Manchester United manager Sir Alex Ferguson

Moyes’ show of sensitivity thrown back in his face... by Ferguson

Manchester United legend tramples on successor who resisted criticising his inheritance
Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

Lonely Planet’s Best in Travel 2015

UK city beats Vienna, Paris and New York to be ranked seventh in world’s best tourist destinations - but it's not London