OECD warns of European recession

Parts of Europe will sink into recession next year, according to the Organisation for Economic Co-operation and Development (OECD).

The Paris-based economic think tank has slashed its forecasts for growth in the euro area for 2012 to just 0.3 per cent, down from a 2 per cent forecast in June.

It says the eurozone will suffer "a marked slowdown with patches of mild negative growth".

The think tank also forecasts growth in the US will slump to 1.8 per cent in 2012, having previously forecast a 3.1 per cent expansion for the world's largest economy.

The OECD further warns unemployment is likely to remain high in advanced economies for the foreseeable future and trade imbalances in the global economy, which fuelled the 2008 credit meltdown, will "remain broadly unchanged" over the next two years.

The downbeat report sets a gloomy scene for this week's G20 meeting in Cannes, where world leaders will discuss proposals for Asian nations to help to stabilise the European sovereign-debt crisis.

The OECD argues that much of the present lack of confidence in the global economy is due to the prevarication of politicians.

It calls on G20 leaders to act together in the manner of 2008, where they successfully avoided "a second Great Depression".

It says eurozone leaders should implement the rescue package agreed at last week's Brussels summit "promptly and forcefully", but stresses more detailed information is needed, especially over how the firepower of the European bailout fund will be maximised.

It also recommends the European Central Bank should cut interest rates to support growth across the Continent.

The OECD's sobering message was reinforced by a report by the International Labour Organisation (ILO) yesterday, which argues that the global economy is on the verge of a new recession. Another slump, according to the ILO, is likely to trigger mass social unrest.

- Independent