Economic recovery in the world’s richest countries is accelerating thanks to a “substantial” rebound in trade and growth in Asia, but austerity measures are needed to reduce deficits – as Europe’s debt crisis proves, a leading agency said today.
The Organization for Economic Cooperation and Development, a watchdog for 31 of the world’s most developed economies, said that serious risks including Europe’s sovereign debt crisis and a possible boom-bust scenario in emerging markets such as Brazil, India and China still threaten what it calls a “relatively auspicious” economic environment.
“The period of significant financial instability that began in August 2007 is not yet over,” the OECD warned in its latest biannual Economic Outlook.
The Paris-based group also raised its forecasts for economic growth in its member countries – which include the U.S., Japan, Germany and the United Kingdom – to 2.7 percent this year, up from its forecast of 1.9 percent last November.
The OECD lifted its forecasts for Japan, the United States and the eurozone countries, but Japan and the U.S. are still expected to outpace Europe, the report said.
“The outlook has really improved in this short period” since the OECD’s last forecast, Secretary-General Angel Gurria said in a news conference at the organization’s headquarters.
But the OECD chief urged member countries to pursue “fiscal consolidation” – reducing their deficits through spending cuts and a clampdown on tax evasion – which he said was “imperative” to make the OECD’s positive growth outlook a reality.
The OECD publishes its economic outlook twice a year, although it updated some 2010 forecasts in an interim assessment published in April.
Europe’s response to its sovereign debt crisis – the latest chapter in the global financial and economic turmoil that began three years ago – has been “prompt and massive,” the OECD said, but has failed to settle the currency bloc’s “underlying weaknesses.”
The OECD called for “bolder measures” – up to and including an effective fiscal union – among eurozone countries in order to “dissipate doubts about the long-term viability of the monetary union.”
“Bolder measures need to be taken to ensure fiscal discipline, along a continuum that ranges from stronger surveillance and more effective sanctions for noncompliance, to external auditing of national budgets all the way to de facto fiscal union,” the OECD said.
Gurria stressed that the current turbulence in Europe is part of the same crisis that began in the U.S. in 2007. “This is the same crisis, it’s a continuum,” Gurria said, adding that the next challenge after slashing the massive debt loads countries took on save the banking industry and combat recession is unemployment.
– Associated Press