The global economy is slowing, with key European countries entering a recession that is now having an impact worldwide, the OECD said in its latest Interim Economic Assessment.
The Assessment, presented in Paris by Chief Economist Pier Carlo Padoan, says that the G7 economies are expected to grow at an annualised rate of just 0.3 percent in the third quarter of 2012 and 1.1 percent in the fourth. It warns that the continuing euro area crisis is dampening global confidence, weakening trade and employment and slowing economic growth for OECD and non-OECD countries alike (See the Chief Economist’s presentation).
“Our forecast shows that the economic outlook has weakened significantly since last spring,” Mr Padoan said. “The slowdown will persist if leaders fail to address the main cause of this deterioration, which is the continuing crisis in the euro area.”
The OECD projects that the euro area’s three largest economies – Germany, France and Italy – will shrink at an annualised rate of 1 percent on average during the third quarter and at 0.7 percent in the fourth.
Seen individually, the German economy is expected to contract at an annualized rate of 0.5 percent in the third quarter and at 0.8 percent in the fourth. The French outlook is slightly better, with contraction at an annualised rate of 0.4 percent in the third quarter followed by a slight pick up in growth at 0.2 percent in the fourth. In Italy, the deep recession will continue with contraction at an annualised rate of 2.9 percent in the third quarter and 1.4 percent in the fourth.
The weak growth outlook is expected to push unemployment beyond today’s already high levels. “Resolving the euro area’s banking, fiscal and competitiveness problems is still the key to recovery,” Mr Padoan said.
While the United States is affected by the euro area slowdown, growth is nonetheless projected at an annualised rate of 2 percent in the third quarter and a 2.4 percent pace in the fourth. Canada is set to grow at a rate of 1.3 percent during the third quarter and 1.9 percent during the fourth. The Japanese economy is projected to contract at an annualised rate of 2.3 percent during the third quarter and hover around a zero growth rate in the fourth.
“A number of downside risks threaten the outlook, including the potential for further increases to already high oil prices, excessive fiscal contraction, notably in the United States in 2013, and further declines in consumer confidence linked to persistent unemployment,” Mr Padoan said.