Threat of another European recession

The Organisation for Economic Co-operation and Development has warned that there is a high risk of another European recession.

The Organisation for Economic Co-operation and Development (OECD) has warned that there is a high risk of another European recession unless policies are urgently put in place to stop the debt crisis spreading.

The OECD’s latest economic outlook report forewarns that unless addressed, the recent contamination of the debt crisis to countries regarded to have concrete public finances could drastically escalate current economic disruption.  The report found that increasing pressures on bank funding and balance sheets are increasing the risk of another credit crunch.

In order for this bleak outlook to improve, decisive action must be taken quickly. Pier Carlo Padoan, chief economist at the OECD states that:

“In the euro area, the risk of contagion needs to be stemmed through a substantial increase in the capacity of the European Financial Stability Fund, together with a greater ability to call on the European Central Bank’s balance sheet.  Much greater firepower must be accompanied by governance reforms to offset the risk of moral hazard.”

Padoan has expressed the OECD’s concerns around policy-makers failing to understand the urgency of taking decisive actions, in order to tackle the increasing risks to the global economy.

“We see the US growth recovering only slowly, the euro area entering into mild recession and Japan growing faster because of reconstruction, but this boost is temporary and will fade away.”

The OECD has stated that eurozone GDP growth is predicted to slow down from 1.6 per cent this year to 0.2 percent next year, with expectations that it will pick up to 1.4 per cent in 2013.

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