OECD says growth could drop to 0.3% – down from predicted 2%
It warns that bold action is ‘imperative’ at G20 in Cannes
Last updated at 6:20 PM on 1st November 2011
Britain’s recovery from recession may already feel like it’s dragging its heels but a leading think tank has warned that it could take more than six years before our economy is rectified.
With growth figures of around 0.4 per cent for the latest quarter expected for Britain today, The Organisation for Economic Co-operation and Development has predicted the eurozone will come close to an economic halt next year, with 0.3 per cent growth, sparking fears of another recession.
Such a slowdown in Europe would badly dent Britain’s growth prospects, with Chancellor George Osborne already looking certain to have to downgrade growth forecasts.
Growth is expected to slow to 1.6% this year and fall sharply to 0.3% next year
The blue shaded area shows the OECD’s expected growth for the next two years
And the OECD’s stark warning came as an economist for Left-wing think-tank the Institute of Public Policy Research said the UK was going through a six-year period of recession and recovery.
Tony Dolphin said: ‘If we take the Office for Budget Responsibility’s latest forecasts, real GDP will not exceed its previous peak until the second quarter of 2013 – fully five years after the recession began.
‘This will make it a year longer than the previous longest recession – the one that began in 1979.
‘But the OBR’s forecasts were made in March. The outlook for growth in the UK has deteriorated since then.
‘Independent forecasters have been revising down their growth forecasts for 2011 and 2012 and the OBR is likely to do so too when it publishes its new forecasts on November 29. If these new forecasts prove correct, this recession could last as long as six years.’
The recovery could take even longer if the eurozone doesn’t get to grips with the current crisis said the OECD, as economic warnings flow thick and fast.
It warned that bold action needs to be taken at the G20 summit in France this week to stave off the threat of another recession in Europe.
The international body predicted a ‘marked slowdown’ in the single currency bloc with ‘patches’ of recession as it slashed its growth forecasts for some of the world’s biggest economies.
But it said the outcome could be much worse if leaders fail to shore up the eurozone and stop the crisis spreading from smaller economies such as Greece and Portugal to larger countries such as Italy and Spain.
A repeat of the financial crisis of 2007-09 – which included the implosion of U.S. investment bank Lehman Brothers in September 2008 – could wipe five per cent off the GDPs of major economies by the first half of 2013, said OECD secretary general Angel Gurria.
He urged Britain to hold its nerve and stick to austerity measures set out in the Coalition agreement.
‘In many cases, when you have a very large deficit, and that was certainly the case of the UK, you have to give signals that you are no longer choosing or wavering.
‘Very, very strong signals in the direction that you want to go in that will give confidence and power to the country in the markets. That’s exactly what happened,’ he said.
‘Then the question is roll out, the execution. So far the execution has been credible, the markets never discuss the quality of the rating of the UK.’
The OECD also warned that the U.S., the world’s biggest economy, would grow by just 1.8 per cent instead of 3.1 per cent.
David Cameron said he didn’t want opposition politicians to talk the economy down while Ed Miliband called on the Government to ditch its economic plans to reduce the deficit and do more to boost growth
Overall, growth in the G20 nations will slow to 3.8 per cent in 2012, compared to 3.9 per cent this year, although it should accelerate to 4.6 per cent in 2013, it said.
Last night the Treasury said: ‘Good progress has been made recently by the eurozone to address the conditions it faces and, as the OECD states, it is important that this momentum is maintained.
‘In this time of international uncertainty, the Government’s action to tackle the deficit has put the UK ahead of the curve and is helping to mitigate against the risks that are weighing down on confidence elsewhere.’