OECD slashes UK growth forecast and warns euro crisis set to hit global economy

| September 7, 2012 | 0 Comments

By
Harry Glass

07:09 EST, 6 September 2012


|

03:27 EST, 7 September 2012

The UK will not come out of recession this quarter, had its GDP forecast for the year slashed, and will struggle along with a stumbling global economy if the euro crisis is not dealt with, according to a respected think-tank.

The Organisation for Economic Co-operation and Development (OECD) predicted a 0.7 per cent fall for the UK this year, having previously expected a rise of 0.5 per cent.

And it also said GDP will contract by 0.7 per cent in the third quarter compared to a year ago, keeping the country in recession.

The OECD makes the UK the worst performing G7 nation apart from Italy in the year.

However, it did note that this did not
take into account a ‘likely bounce back in activity’ following the
Diamond Jubilee in June and the London Olympics.

It still makes the UK the worst performing G7 nation apart from Italy in the year.

Chancellor George Osborne told a CBI Scotland dinner in Glasgow last night: ‘The economic outlook remains uncertain but there are some positive signs.

‘Our economy is healing – jobs are being created, manufacturing and exports have grown as a share of our economy, our trade with the emerging world is soaring, inflation is down, much of the necessary deleveraging in our banking system has been achieved, and the world is once again investing in Britain.

‘But the scale of the challenge is so great there are no quick fixes or easy routes to recovery. Nobody is offering a credible or convincing alternative economic strategy. There is no easy path.’

GDP table

GDP table

Pier Carlo Padoan, chief economist at
the OECD, warned that the global economy will not pick up unless action
is taken in Europe. 

‘Our forecast shows that the economic outlook has weakened significantly since last spring,’ Mr Padoan said. ‘The slowdown will persist if leaders
fail to address the main cause of this deterioration, which is the
continuing crisis in the euro area.’

It also warned there are further risks
for the world economy posed by potential rises in oil prices and the
lack of confidence caused by persistent unemployment.

Prime Minister David Cameron’s
official spokesman said of the figuers: ‘They demonstrate what we know,
which is that these are very difficult times in the world economy.

‘The OECD highlights the euro area
crisis as the single biggest global economic risk and in addition to
that problem that UK is dealing with some deep-rooted issues at home.

‘All the evidence shows that recovery
from financial crisis takes a long time and there is no doubt we still
have an impaired banking and financial system in this country. Clearly
it is going to be difficult for us in this country while there are
continuing problems in the eurozone.’

The OECD projects that the euro area’s
three largest economies – Germany, France and Italy – will shrink at an
annualised rate of 1 per cent on average during the third quarter and
at 0.7 per cent in the fourth.

Unemployment

It suggested countries suffering weak
growth should cut interest rates if they are above zero and said money
printing programmes could be expanded – while the Bank of England today
announced, as widely predicted, no change either to the 0.5 per cent
base rate or the QE programme which has already pumped in £375billion.

The European Central Bank should lower
interest rates on its marginal lending facility, it suggested, while it
could also intervene in bond markets to help reduce Spain and Italy’s
painfully high borrowing costs.

The report suggests the eurozone
crisis is now spreading to the currency bloc’s core countries of Germany
and France, which have previously helped prop up the weaker debt-ridden
states in the periphery, but will slip into recession in the second
half of 2012.

It predicts the three biggest
economies – Germany, France and Italy – will contract by an annualised
rate of 1 per cent in the current quarter and nearly as much in the next
quarter.

Meanwhile official figures confirmed
that eurozone GDP contracted by 0.2 per cent in the second quarter of
2012, after zero growth the previous quarter.

Trade / export graph

The comments below have not been moderated.

We need to forget the possibility of any ‘real’ growth for the next 5-10 years and instead the focus should be on paying off the debt. We will not be able to do this if we borrow more money.

– PaulH, London, 06/09/2012 15:11

I agree completely but the greedy western world will struggle with this concept and will not accept it. The truth hurts and always catches up with you. East is getting richer and west is getting poorer, a trend unlikely to be reversed I’m afraid.

Keep It Real
,

Milton Keynes, UK,
06/9/2012 22:14

Look over a period of time at the US budget, it falls under a left wing Goverment. The Budget went up about 400% under Bush/ Ragan, the fell under Clinton. It then went up under 8 years of Bush again. Before Bush left office he gave large tax brakes to the very rich, which the Right vote to keep in place. Unlike Osborne and Dave here, they do not blame the last lot but try to get on with a recovery. As for the Right next hopeful he got rich taking jobs from US workers and had a lower tax rate than most workers on only the one tax return on view. It is said it is the only one he paid tax on, but we will never know until details are given……A bit like the Bush National Service record, he signed on and signed off and no other details????

Dave
,

London, United Kingdom,
06/9/2012 19:04

Arthurheard….The USA Obama have borrowed beyond belief, have you seen how much in debt they are?

PaulH
,

London,
06/9/2012 18:25

All our problems stem from the greed of bankers and the financial institutions.

royston amphlett
,

bournemouth, United Kingdom,
06/9/2012 18:13

Look what the Americans are saying about the British Economy:
The UK¿s austerity effort means it has failed to avoid the threat of the Great Depression seen in the 1930s, according to former US Treasury Secretary Larry Summers.
In an assault on the policies pursued by David Cameron¿s government, Mr Summers said that ¿excessive slashing of public budgets¿ must be abandoned.
¿We have avoided the prospect of a 1930s-like experience in the United States,¿ he said. ¿I cannot say the same with respect to Great Britain. The downturn in British output is more sustained than at any point in the twentieth century.”

ArthurHeard
,

London, United Kingdom,
06/9/2012 16:57

Recession? Build a few more conservatories and everything will be rosy Dave!!!

He Be GB
,

Maldon,
06/9/2012 16:52

Does the Boy Wonder at No10 read these reports? Even OsBrowne has stopped blaming Europe. VATman should have been shown the door when his plan to tax his way to growth failed. Did you see him smile on TV the other night when 80,000 fans booed him…. His tax on OAP will lose Dave then next election, is that the plan?

Dave
,

London, United Kingdom,
06/9/2012 16:46

The UK entered the recession BEFORE the EU. Our economy has been trashed by Osborne who shouldn’t be controlling anything more complicated than a model railway.

ArthurHeard
,

London, United Kingdom,
06/9/2012 16:13

We need to forget the possibility of any ‘real’ growth for the next 5-10 years and instead the focus should be on paying off the debt. We will not be able to do this if we borrow more money.

PaulH
,

London,
06/9/2012 16:11

This is the major problem but the so called brains of this country who became economists cannot get their heads round the problem of no growth and the politicians cannot do a thing about it Europe is in deep recession and they are our major customers America are in recession but Obama as spent 5-trillion dollars but all he as done is increased their deficit so as a customer they wont be buying a lot as all this trouble is being caused by all these coutries and that includes us have been paying ourselves to much and living beyond our means and now the proble is no one likes it now they are having to pay back for our excesses.

peter
,

manchester,
06/9/2012 15:48

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