The global economy “is not out of the woods,” announced the Paris-based Organization for Economic Cooperation and Development, which today cut growth forecasts for its 34 member nations in its twice-annual global Economic Outlook.
The wealthy western countries that comprise OECD will grow 1.9 percent this year and 1.6 percent in 2012, a revision downward from 2.3 percent and 2.8 percent forecast in May. “The global economy has deteriorated significantly,” the OECD said in its report, which called upon “a credible commitment” by euro area governments to stop the euro area sovereign debt crisis from spreading.
“Prospects only improve if decisive action is taken quickly,” OECD Chief Economist Pier Carlo Padoan said in a statement. “In the euro area, the risk of contagion needs to be stemmed…Much greater firepower must be accompanied by governance reforms to offset the risk of moral hazard.”
The report also called on the United States to enact “a credible medium-term fiscal program.”
The OECD projects the gross domestic product in the United States to rise by 2 percent in 2012 and by a further 3.5 percent in 2013. It forecasts euro area growth to slow down before picking up 1.4 percent in 2013. China’s economic growth is projected to ease to 8.5 percent in 2012 from 9.3 percent this year, and then climb back to 9.5 percent in 2013. Japan’s GDP is expected to expand by 2 percent in 2012 and 1.6 percent in 2013 following a contraction of 0.3 percent this year, which reflects the impact of the earthquake and tsunami and subsequent reconstruction activity, the report said.
Moody’s Investors Service issued a similarly cautionary report that warned of possible euro area downgrades in 2012. ''In the absence of major policy initiatives in the near future which stabilize credit market conditions, or those conditions stabilizing for any other reason, the point is likely to be reached where the overall architecture of Moody's ratings within the euro area, and possibly elsewhere within the EU, will need to be revisited,'' its report said.“The probability of multiple defaults by euro-area countries is no longer negligible. A series of defaults would also increase the likelihood of one or more members not simply defaulting, but also leaving the euro area.”