Decisive policy action is needed to ensure the world is not “plunged back into recession,” according to the Organisation for Economic Co-operation and Development, which represents the world’s richest nations.
The group’s economies will grow by 1.4% next year, rather than the 2.2% forecast in May, it said.
The Eurozone recession will also cut deeper and be more prolonged than previously thought, it added.
The group highlighted the so-called US fiscal cliff and the Eurozone debt crisis as the biggest risks to the global economy.
The fiscal cliff refers to spending cuts and tax increases, designed to reduce the US government’s debt levels, that are due to kick in in the new year.
“The world economy is far from being out of the woods,” said the OECD’s secretary general, Angel Gurria.
“The US fiscal cliff, if it materialises, could tip an already weak economy into recession, while failure to solve the Euro area debt crisis could lead to a major financial shock and global downturn.”
The OECD cut its growth forecast across its 34 members for this year and next. It also revised down sharply its estimate for the eurozone economy, which it now believes will contract by 0.1% in 2013, rather than grow by 0.9% as forecast in May.
The forecast for growth in the UK next year was cut to 0.9%,- down from 1.9% previously.
The revised forecasts were published just hours after Eurozone finance ministers finally agreed to help debt-ridden Greece.
After hours of late-night negotiations, they agreed to cut the country’s debts by 40bn euros and have paved the way for releasing the next tranche of much-needed bailout loans.
– BBC News