EU IS SET TO SLUMP – OECD recommends Quantitative Easing

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Europe’s economic crisis ‘could evolve into stagnation, with negative implications for the global economy’, the OECD warned yesterday.

The 34-nation Paris-based Organisation for Economic Co-operation and Development once again cut its growth forecast for the eurozone and called on the European Central Bank to consider Quantitative Easing.

The organisation’s chief economist, Pier Paolo Padoan, said that the eurozone remained the dominant area of concern.

‘Europe is in a dire situation,’ he said. ‘We think that the eurozone could consider more aggressive options. We could call it a eurozone-style QE.’

The organisation predicted that the eurozone will shrink by 0.6% this year, widening the gap between it and growing economies such as the US and Japan.

It said prolonged economic weakness in Europe could damage the global economy.

The forecast for the UK was also revised down to just 0.8% growth.

The predictions came in the OECD’s twice-yearly Economic Outlook publication.

Its forecast of a 0.6% eurozone contraction in GDP, was markedly worse than the 0.1% contraction forecast just six months ago.

It said eurozone unemployment would continue to rise from its current rate of 12% and blamed austerity, weak confidence and tight credit.

It suggested that the European Central Bank (ECB) might want to expand quantitative easing (QE) as a measure to encourage stronger growth and warned continuing weakness in Europe ‘could evolve into stagnation, with negative implications for the global economy’.

Meanwhile, unemployment in Germany rose during May, according to the latest set of official figures.

The country’s Labour Office said that, on a seasonally adjusted basis, the number of people out of work increased by around 21,000 to 2.963 million, well above expectations.

Labour office chief Frank-Juergen Weise claimed that the German job market was ‘fundamentally sound and is developing solidly in a difficult economic environment’.

Analysts said employers were cautious, following concerns about the economic situation in Italy and Cyprus.

Last week, a survey showed that staffing levels fell across the private sector in May, the first time that has happened since January.

Several major German companies are cutting costs and jobs, including steel distributor Kloeckner and chemicals giant BASF.