The global economy is slowing once again, as a slump in major European economies is now dragging on the rest of the world, says the Organization for Economic Co-operation and Development (OECD) in its latest outlook.
The OECD said on Thursday that key European countries are entering a recession that is now having an impact worldwide. It now says that the G7 economies are expected to grow at an annualized rate of just 0.3% in the third quarter of 2012 and 1.1% in the fourth.
It warns that the continuing euro area crisis is dampening global confidence, weakening trade and employment, and slowing economic growth worldwide.
“Our forecast shows that the economic outlook has weakened significantly since last spring,” said OECD chief economist, Pier Carlo Padoan. “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 annualized rate of 1% during the third quarter, and at 0.7% in the fourth.
The weak growth outlook is expected to push unemployment beyond today’s already high levels, the OECD warns. “Resolving the euro area’s banking, fiscal and competitiveness problems is still the key to recovery,” Padoan said.
Elsewhere, the OECD projects that Canada will grow at a rate of 1.3% during the third quarter, and 1.9% during the fourth. Growth in the U.S. is forecast at an annualized rate of 2% in the third quarter, and 2.4% in the fourth. The Japanese economy is projected to contract at an annualized rate of 2.3% during the third quarter, rising to a 0% 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,” Padoan said.