OECD warns of euro weakness | Business| Economy and finance news from a German perspective | DW | 06.11.2014
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OECD warns of euro weakness

The OECD's new Economic Outlook report calls for action to fight stagnation in the eurozone. It warns the common currency area has become a drag on the world economy, and says reform and quantitative easing are needed.

The OECD has described weakness in the eurozone as a major concern for the global economy and called for the European Central Bank to "increase asset purchases" to head off the danger of deflation.

"Overall, 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 Paris-based group's Chief Economist, Catherine Mann, said Thursday as it released its latest Economic Outlook report.

The report says the world's outlook is "stuck in low gear." It portrays a global economy performing far below its potential, and calls for governments to work together to initiate pro-growth policies and economic reforms.

A mixed picture

"Whereas individual reforms are important for individual economies, getting the global economy into high gear requires system-wide reforms," Mann said. "The increase in GDP that a country may enjoy through broad-based labor, trade, product, and tax reforms is large."

Amid rising financial risks and increasing market volatility, discrepancies in economic performance between countries were another worry, with the eurozone lagging behind both the US and Japan in both investment and consumption overall.

Even within the eurozone, Germany's strong performance contrasts vividly with the economic malaise of France and Italy.

"Within the euro area, those economies who have rebuilt their engines with sweeping reforms are starting to move up the field," Mann said.

One size does not fit all

Because of these divergences, the OECD is calling for "more variation" in the ways countries must support demand. And it said Europe's central bank must step in to kick-start the eurozone economy and head off the threat of deflation.

"Monetary policy stimulus - beyond measures already announced - is needed in combination with banking union and structural reforms," it warned. "This should include a commitment to sizeable asset purchases - quantitative easing - until inflation is back on track."

While the report predicted sluggish growth for the eurozone, climbing to from 0.8 percent in 2014 to 1.7 percent in 2017, it described the US's recovery as "robust," expecting growth there to increase from 2.2 percent this year to 3.0 percent in three years' time.

Falling BRICS

In contrast, China is attempting a controlled slowdown to achieve more sustainable growth rates and is predicted to slow from 7.3 percent to 6.9 percent. India's 6.6 percent will nearly match it in 2017, up from 5.4 percent today.

Brazil and Russia appear mired in low-growth scenarios and may need to raise rates further, it said.

The Economic Outlook is an analysis and forecast of OECD member states' economies published twice a year. The current report, which focuses on the economies of the G-20 group of 20 leading economies, will be released in full on November 25.

The OECD was founded in 1961 to stimulate world trade, market economics and democracy.

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