Europe weighing on global economy

Hospital workers tie protest banners on a fence at a hospital in Madrid during a protest against cuts in the national health service on Tuesday. Spaniards are angered by austerity measures, including budget cuts and plans to partly privatize some of their country’s cherished national health service. Banners read: ‘Make love not sales’ and ‘Manipulation of figures, You compare rich hospitals with poor hospitals.’ Enlarge photo

Paul White/Associated Press

Hospital workers tie protest banners on a fence at a hospital in Madrid during a protest against cuts in the national health service on Tuesday. Spaniards are angered by austerity measures, including budget cuts and plans to partly privatize some of their country’s cherished national health service. Banners read: ‘Make love not sales’ and ‘Manipulation of figures, You compare rich hospitals with poor hospitals.’

PARIS – The global economy could easily slide back into recession if its major problems – like U.S. budget standoffs and Europe’s lack of jobs – are left to fester, a leading international economic body said Tuesday.

In its half-yearly update, the Organization for Economic Cooperation and Development warned that the recovery will be “hesitant and uneven” during the coming two years and that a new major contraction cannot be ruled out.

“The world economy is far from being out of the woods,” OECD Secretary-General Angel Gurria said. “Governments must act decisively, using all the tools at their disposal to turn confidence around and boost growth and jobs in the United States, Europe and elsewhere.”

Gurria’s downbeat assessment came as the OECD published a fairly glum set of predictions. Though the world economy is expected to grow by 3.4 percent next year, up from 2.9 percent this, the numbers mask big divergences around the world.

Though countries like China, Brazil and India are expected to see growth pick up, the more established economies that the Paris-based OECD traditionally monitors remain stuck in a rut.

In particular, the OECD was gloomier about Europe than in its last forecast six months ago, saying “the greatest threats to the world economy” lie in the 17-country eurozone, which continues to grapple with a debt crisis after three years. A deep global recession is also possible, it said, if the European crisis doesn’t stabilize.

The downbeat report came despite recent indications that the crisis in the eurozone is ebbing. Earlier Greece’s euro partners and the International Monetary agreed to hand over more bailout cash on easier terms to the country, a move that’s eliminated fears of an imminent bankruptcy.

The OECD is now predicting a 0.4 percent contraction this year for the eurozone, worse than May’s 0.1 percent forecast. For next year, it’s forecasting a further 0.1 percent fall, in contrast to the previous prediction of 0.9 percent growth.

It also downgraded its forecasts for the U.S. economy and warned that it could be worse if the White House doesn’t clinch a deal with lawmakers on the budget. Assuming a deal is thrashed out, the OECD has penciled in growth of 2 percent for the U.S. next year, down from a forecast of 2.6 percent in May.

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