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US and Eurozone Could Pull World in to Recession

The risk of a serious global recession is a real problem with the likelihood of the eurozone economy contracting again next year, says the Organisation for Economic Co-operation and Development (OECD).

The OECD has warned policymakers to act decisively to avoid plunging the global economy back into recession.

The OECD’s Economic Outlook is predicting a hesitant and uneven global recovery in the next two years that could be undermined by the eurozone’s financial instability and America’s risk of tipping over a ‘fiscal cliff’ and falling back into recession – with the risk of one or both taking other economies down with them.

Angel Gurria, the OECD’s general secretary, said: “Governments in Europe and America must act decisively to improve confidence and boost jobs and economic growth.

“If it materialises, the US ‘fiscal cliff’ could tip what is a weak economy into recession.

US financial stalemate

“At the same time, failure by the eurozone to solve its crisis could lead to a major financial shock and then a global downturn.”

It’s the stalemate in the US over fiscal policy which really needs to be addressed, says Mr Gurria.

The OECD predicts that GDP growth next year will match the 1.4% of 2012 and then growing to 2.3% in 2014.

If America avoids its ‘fiscal cliff’, its economy should grow by 2% in 2013 and then rising to 2.8% the year after.

The Economic Outlook also predicts positive growth for Japan – 0.7% next year and then rising slightly to 0.8% in 2014.

However, the economic prediction for the eurozone is gloomy. The OECD forecasts the single currency group will stay in recession until early next year and then see a mild contraction in GDP of 0.1% in 2013, which will improve to 1.3% in 2014.

Greek economy slipping up

Of the eurozone members, the OECD says Greece is the worst performer, with an economy that will shrink by 4.5% next year. Spain, Slovenia, Italy and Portugal will all have contracting economies next year as well.

By contrast, the figures for economic powerhouse China are robust, with growth next year predicted at 8.5% and then rising to 8.9% the year after.

Emerging market economies will also pick up next after softer than expected growth this year  – with the GDP for Russia, India, Brazil and Indonesia improving steadily in the coming years.

The economic figures also predict a weak jobs front with around 50 million people looking for work in the 34 economies of the OECD. And, they say, that figure could worsen unless major efforts are made structurally to boost near-term employment.

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