Recession 'taking hold' in Eurozone, OECD says

OECD says global growth slowed by European crisis; recession 'taking hold' in eurozone

Associated Press
Spain PM quiet on bailout as ECB outlines new plan
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State School teachers protest against cutback plans in Spanish State Schools, as they hold up banners reading: ''Not to Cutback Plans'', in Pamplona, northern Spain, Wednesday, Sept. 5, 2012. Spain is in a double-dip recession, spurred largely by a real estate crash in 2008. It has been trying to avoid following Greece, Ireland, Portugal and Cyprus in having to ask for an international financial bailout. (AP Photo/Alvaro Barrientos)

PARIS (AP) -- Europe's debt crisis is pushing the 17-country eurozone toward recession and dragging down the global economy, the Organization for Economic Cooperation and Development said Thursday.

Even growth in traditional economic powerhouse Germany is slowing, and the OECD's interim assessment said that Europe's largest economy could slip into recession by the end of the year.

"The negative elements of the global economy ... stemming mostly from Europe are there and they are somewhat stronger than they used to be a few months ago," OECD Chief economist Pier Carlo Padoan told reporters.

He said the good news was that the global economy was not in recession, but that avoiding one would depend on what politicians do in the coming months and pushed especially for more action by the European Central Bank. The ECB could outline later in the day a plan to buy up the bonds of governments struggling with high borrowing costs.

Padoan said he was encouraged by recent progress in Europe to get a handle on the crisis.

High borrowing rates are at the heart of the European crisis and have forced several countries to seek bailout loans. Now, larger economies, like Italy and Spain, are suffering high rates. Many experts worry that Europe can't afford to rescue them but also can't afford to let them fail.

Padoan also dismissed concerns — mostly coming from Germany — that ECB intervention could push up inflation. He said it wasn't clear that bond-buying would increase inflation and that, at any rate, Europe needed more inflation.

In May, the OECD — which monitors economic trends for the world's most developed economies — said that the 17-country eurozone could contract by as much as 2 percent this year. Thursday's assessment didn't offer a comparable prediction, and Padoan wouldn't say if he thought such a severe contraction was likely.

Instead, the report says a recession is "taking hold" in the eurozone and predicts the three largest economies that use the euro — Germany, France and Italy — will shrink by 0.2 percent this year.

For Germany, it predicted an annualized contraction of 0.5 percent in the third quarter and of 0.8 percent in the fourth.

According to the statistics agency Eurostat, the eurozone economy shrank 0.2 percent in the second quarter of the year after growth was flat in the first quarter. A recession is defined as two consecutive quarters of negative growth.

The interim report said it expects the U.S. to grow 2.3 percent this year, just off its May prediction of 2.4 percent.

Padoan warned that significant uncertainty marks the organization's predictions and that the global economy faces several risks that could further drag down growth.

The largest is the European response to its debt crisis, which is most responsible for the poor outlook. But Padoan also cited the so-called "fiscal cliff" in the U.S., a reference to the end of the year when a series of tax increases and spending cuts takes effect.

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