"There is a risk to the euro, let's not deny that," OECD chief economist Pier Carlo Padoan told Reuters in an interview. "But I would like also to say that there is a possibility of avoiding that risk." A worst case scenario of continued inaction in the eurozone and the failure of US lawmakers to agree 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 eurozone leaders, the European Central Bank (ECB) alone has the power to contain the bloc's crisis, the OECD said. In the United States, 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 any more." Its twice-yearly Economic Outlook forecast that world growth would slow to 3.4 percent in 2012 from 3.8 percent this year. That marks a sharp fall from its previous outlook in May, when the OECD estimated the world economy would grow 4.2 percent this year and 4.6 percent in 2012.
Separately forecasting global growth of 3.5 percent in 2012, Morgan Stanley warned in a report that, in a worst case scenario, policymakers' inaction in both Europe and the United States could lead to much lower growth of 1.9 percent, with recessions in many major economies. With world trade growth projected to slow to 4.8 percent in 2012 from 6.7 percent this year, even China would not be spared a sharp slowdown, the OECD said.
It forecast that growth in the emerging Asian economic power would slow to 8.5 percent in 2012 from 9.3 percent in 2011. Slower global trade and confidence knocked by the eurozone's debt crisis could trip up Germany, which the OECD estimated would grow only 0.6 percent in 2012 after a 3.0 percent expansion in 2011. Europe's biggest economy has probably entered a shallow recession at the end of the year, the OECD said. In a rare bright spot, the Japanese economy was seen rebounding sharply after this year's earthquake and tsunami to achieve growth of 2.0 percent in 2012 following a contraction of 0.3 percent in 2011.