World Economy

Euro area ‘major risk to world growth’: OECD

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The euro zone poses a serious danger for global growth, with the world's economy already "in low gear", the Organisation for Economic Co-operation and Development (OECD) said on Tuesday.

"The euro area is grinding to a standstill and poses a major risk to world growth, as unemployment remains high and inflation persistently far from target," the OECD said in the 96th edition of its Economic Outlook.

The euro zone's fledgling recovery—which started at the end of 2013—has been a cause for concern over recent months, with gross domestic product (GDP) rising only 0.2 percent quarter-on-quarter between July and September. Policymakers are also battling with very low inflation and high unemployment—around one-quarter of Spaniards and Greek remain without jobs.

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The OECD sees euro zone economic growth at 0.8 percent this year. This is better than the economic contraction the currency union suffered in 2012 and 2013, but below average growth of 1.1 percent between 2002 and 2011.

By comparison, the OECD expects the world's economy to expand by 3.3 percent this year. As with the euro zone, this is an improvement on 2012 and 2013, but below the 2002-2011 average of 3.8 percent.

"A moderate improvement in global growth is expected over the next two years, but with marked divergence across the major economies and large risks and vulnerabilities," the OECD said.

A euro zone analyst at the Economist Intelligence Unit said the risks to the world economy posed by the euro zone were even larger than the OECD forecast.

"The euro zone's fundamental institutional deficiencies are now exacting a damaging price, by hampering the formulation and implementation of policy responses to the ongoing slump," said Aengus Collins in a research note emailed after the OECD report.

"In addition, the OECD overlooks political risk, which is rising sharply in line with voter disaffection."

Major countries expected to post solid growth include the U.S., which the OECD predicts will expand by 2.2 percent this year and 3.1 percent next. China, meanwhile, is seen growing by an impressive 7.3 percent in 2014, before slowing to 7.1 percent in 2015.

The OECD report came after data from data provider Markit on Monday suggested that global business confidence was at a five-year low.

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"Clouds are gathering over the global economic outlook, presenting the darkest picture seen since the global financial crisis," said Chris Williamson, chief economist at Markit.