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February 5, 2023

OECD warns of European recession

The Organization for Economic Cooperation and Development (OECD) foresaw Monday “a mild recession” in the eurozone in the near term as the sovereign debt concerns becomes “increasingly widespread” and advanced economies are collectively slowing down, Xinhua informs. The euro area is expected to grow 1.6 percent this year, then decline to a mild growth of only 0.2 percent in 2012 before rebounding to 1.4 in 2013, according to the latest Economic Outlook released by the Paris-based organization which paid special focus on the region in this edition. “Decisive policies must be urgently put in place to stop the euro area sovereign debt crisis from spreading and to put weakening global activity back on track,” the OECD said in a press release launching the Outlook. The new projection was 0.4 percentage points less in 2011 growth figure compared with the previous one, but revised sharply down the 2012 figure from 2.0 percent in the previous report released in May. The last quarter of 2011 and the first quarter of 2012 will respectively see contraction of 1.0 percent and 0.4 percent, the OECD report said.

The bleak economic outlook can be turned into a rosier one if each euro member does its own homework to adjust with appropriate measures, the chief economist of the Paris-based OECD Pier Carlo Padoan says. The OECD official said a downside scenario assumes that there are major negative events in the euro area such as liquidity defaults, significant credit crunch situation, which may spark a generalized contagion, generates an impact on real economy and could end up in severe recession in 2012 and even more in 2013. He recommends banks to strengthen their balance sheet by increasing their capital and the ECB to strengthen intervention. Meanwhile, Moody’s Investors Service said the “rapid escalation” of Europe’s debt and banking crisis is threatening all of the region’s sovereign ratings. Credit risks will continue to rise without measures to stabilize markets in the short term, the ratings company said in a statement yesterday, quoted by BBC. European Union policy makers also face constraints to act quickly to restore confidence, it said. The probability of multiple defaults by euro-area countries is no longer negligible, Moody’s said, adding that the longer the liquidity crisis continues, the more rapidly the probability of defaults will continue to rise.

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