Euro zone crisis biggest threat to global economy

The euro zones debt crisis has become the biggest threat to the global economy and a breakup of the currency zone can no longer be ruled out, the Organisation for Economic Cooperation and Development has said.Slashing its forecasts, the OECD on Monday urged the European Central Bank to play a bigger role in defusing the crisis.Reuters reported that the organisation said the euro zone had already entered a mild recession but much worse could follow unless policy makers take decisive action to get ahead of the market."There is a risk to the euro, lets not deny that," the OECD Chief Economist, Pier Carlo Padoan, said. "But I would like also to say that there is a possibility of avoiding that risk."The continued inaction in the euro zone and the failure of United States lawmakers to agree on a spending-reduction plan would usher in a devastating downturn for the world economy, the Paris-based OECD said.In the absence of decisive action from euro zone leaders, the ECB alone had the power to contain the blocs crisis, the OECD said. In the US, however, the Federal Reserve had little ammunition left."We are still seeing policy behind the curve," Padoan told a news conference. "This cannot be accepted anymore." "Time is running out and every time we lose the occasion to act effectively, the price or cost for having positive outcomes goes up," he added. Padoan said that the absence of credible action from policymakers was sapping households and companies confidence as well as fuelling damaging volatility on financial markets.While solid growth in big emerging economies would provide a boost, slumping global trade would drag on Chinese output, the OECD said.Its twice-yearly Economic Outlook forecast that the world growth would slow to 3.4 per cent in 2012 from 3.8 per cent this year. That marks a sharp fall from its previous outlook in May, when the OECD estimated the world economy would grow by 4.2 per cent this year and 4.6 per cent in 2012.Separately forecasting global growth of 3.5 per cent in 2012, Morgan Stanley warned in a report that, in a worst case scenario, policymakers inaction in both Europe and the US could lead to much lower growth of 1.9 per cent, with recessions in many major economies.Struggling to contain an unprecedented debt crisis, the euro zone has already entered a recession and will eke out growth of only 0.2 per cent in 2012, the OECD said, slashing its forecast from two per cent in May.
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