The eurozone heads the list of potential threats to the fragile economic recovery among developed countries according to the Organisation for Economic Co-operation and Development in its latest growth outlook report.
It warned European leaders they should consider all possible measures to sort out the bloc’s debt problems.
OECD Chief Economist Pier Carlo Padoan said: “Until a few weeks ago, we were saying that so-called tail risks had gone away; so the global economy – but especially the euro area, which remains the most significant single area of risk in the global economy – had moved away from the edge of the cliff; things have begun to deteriorate again recently.
The OECD forecasts the eurozone’s economy will shrink by 0.1 percent this year and grow by 0.9 percent next year with unemployment in region rising to 11.1 percent of the workforce next year from an expected 10.8 percent in 2012.
It believes that global growth would ease to 3.4 percent this year from 3.6 percent in 2011, before accelerating to 4.2 percent next year with the US and China the main engines of growth.
“The global economic outlook is still cloudy,” OECD Secretary General Angel Gurria told reporters.
“At first sight the prospects for the global economy are somewhat brighter than six months ago. At closer inspection, the global economic recovery is weak, considerable downside risks remain and sizeable imbalances remain to be addressed.”
“A bad outcome scenario in the euro area with implications for the rest of the world cannot be ruled out,” he added.
The OECD head believes Europe can only solve its debt crisis if it stays open to all options, including ideas like euro zone bonds, which are a taboo for Germany.
“You have to put all the instruments on the table,” Gurria said. “We have to overshoot… If the market is waiting for 50 (ideas) then put 100 on the table.”
There is one bright spot in the twice-yearly economic outlook as the OECD does see a rebound in global trade for many economies.