OECD cuts eurozone growth forecasts and backs to George Osborne's austerity strategy as Europe faces unemployment crisis

 

Russell Lynch
Wednesday 29 May 2013 15:24
Comments
OECD Secretary General Angel Gurria talks while presenting the Economic Outlook during the OECD Week
OECD Secretary General Angel Gurria talks while presenting the Economic Outlook during the OECD Week

George Osborne’s deficit-slicing strategy gained backing from the Organisation for Economic Co-operation and Development, but the international thinktank called on the eurozone to turn to the printing presses to revive growth.

The OECD, which represents 34 of the world’s biggest economies, said the pace of the Chancellor’s fiscal tightening over the next two years was “appropriate and should be implemented as planned” in its latest economic outlook.

The verdict is far more supportive that last week’s International Monetary Fund comments that the UK was a “long way from a strong and sustainable recovery” and call on the Treasury to bring forward spending to offset cuts. But the OECD also trimmed its UK growth forecasts for this year and 2014 to 0.8 per cent and 1.5 per cent, down from 0.9 per cent and 1.6 per cent in its November forecasts.

The OECD said of the UK: “Further fiscal consolidation is necessary to restore the sustainability of public finances. The authorities’ medium-term underlying fiscal consolidation plans, together with the use of the automatic stabilisers, should help combine sustained consolidation with necessary flexibility to meet unexpected output shocks.”

But the body also cut its global growth forecasts from 3.4 per cent to 3.1 per cent this year with the eurozone the biggest threat to the world economy.

Chief economist Pier Carlo Padoan said the “dire situation” in the eurozone could necessitate money printing by the European Central Bank — a move likely to be bitterly opposed by the Bundesbank. The ECB has already cut interest rates to a record low 0.5 per cent but Padoan said more action was needed: “We think that the eurozone could consider more aggressive options. We could call it a eurozone-style QE.”

The OECD again slashed its forecast for the 17-member eurozone, pencilling in a 0.6 per cent decline this year on top of a 0.5 per cent fall last year. A year ago the body was predicting growth of nearly 1 per cent this year. Unemployment, already at a record high of 12.1 per cent, is not expected to peak until next year.

The ECB was also urged to consider cutting its deposit rate below zero, effectively charging commercial banks for holding their money overnight, encouraging banks to lend out money to businesses and households. Europe’s woes contrasted with much stronger growth in the US, which is expected to outpace Europe for the next two years. Japan is expected to see growth of 1.6 per cent this year thanks to prime minister Shinzo Abe’s “shock and awe” plans to lift the economy, although the OECD warned it would need a “delicate balancing act” to boost growth in a more sustainable way.

Register for free to continue reading

Registration is a free and easy way to support our truly independent journalism

By registering, you will also enjoy limited access to Premium articles, exclusive newsletters, commenting, and virtual events with our leading journalists

Please enter a valid email
Please enter a valid email
Must be at least 6 characters, include an upper and lower case character and a number
Must be at least 6 characters, include an upper and lower case character and a number
Must be at least 6 characters, include an upper and lower case character and a number
Please enter your first name
Special characters aren’t allowed
Please enter a name between 1 and 40 characters
Please enter your last name
Special characters aren’t allowed
Please enter a name between 1 and 40 characters
You must be over 18 years old to register
You must be over 18 years old to register
Opt-out-policy
You can opt-out at any time by signing in to your account to manage your preferences. Each email has a link to unsubscribe.

Already have an account? sign in

By clicking ‘Register’ you confirm that your data has been entered correctly and you have read and agree to our Terms of use, Cookie policy and Privacy notice.

This site is protected by reCAPTCHA and the Google Privacy policy and Terms of service apply.

Join our new commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies

Comments

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged in