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OECD says Europe remains a threat to world economy, slashes forecast again

The OECD again slashed its forecast for the 17 European Union countries that use the euro, saying it will shrink by 0.6 per cent this year, after 0.5 per cent drop in 2012.

twitter-logo Associated Press   Paris     Last Updated: May 29, 2013  | 00:00 IST

The Organization for Economic Cooperation and Development (OECD) has said the recession in Europe risks threatening the world's economic recovery.

The OECD again slashed its forecast for the 17 European Union countries that use the euro, saying it will shrink by 0.6 per cent this year, after 0.5 per cent drop in 2012.

In its half-yearly update, the agency said protracted economic weakness in Europe "could evolve into stagnation with negative implications for the global economy".

The Eurozone economy shrank 0.2 per cent in the January-March period, the sixth consecutive quarterly decline, making it the longest ever recession for the zone.

The OECD had predicted a 0.1 per cent decline for the Eurozone in its report six months ago - and this time last year, it forecast growth of nearly 1 per cent for 2013.

The US economy will continue to outpace Europe, the OECD said, with growth of 1.9 per cent in 2013 and 2.8 per cent in 2014. For global gross domestic product, the OECD forecasts an increase of 3.1 per cent for this year and by 4 per cent for 2014.

Noting that Eurozone policymakers have "often been behind the curve", the OECD warned that Europe was still beset by "weakly capitalized banks, public debt financing requirements and exit risks".

Meanwhile, the Eurozone's 12.1 per cent unemployment "is likely to continue to rise further ... stabilizing at a very high level only in 2014," the OECD said.

The OECD report predicts unemployment will reach 28 per cent in Spain next year and 28.4 per cent in Greece.

Austerity measures have inflicted severe economic pain and sparked social unrest across the continent. Europe's young people are especially suffering, with unemployment of around 50 per cent in some of the hardest-hit Eurozone countries such as Spain and Greece.

The OECD urged Europe to bolster its efforts to support economic recovery.

While the European Central Bank's loose monetary policy has helped, "more can be done through further non-conventional measures" and the establishment of a Europe-wide banking union, the organization said.

Other major economies have faltered this year but none are in recession, like Europe. The US economy grew 2.2 per cent last year and China, the world's No. 2 economy, is growing around 8 per cent a year.

With a population of more than half a billion people, the EU is the world's largest export market. If it remains stuck in reverse, companies in the US and Asia will be hit.

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