The Paris-based OECD said the eurozone debt crisis remained the biggest threat to the global recovery, followed by the US “fiscal cliff”, geopolitical risk to oil prices, high unemployment undermining confidence and emerging markets’ transition to domestic sources of growth.
Among the large emerging markets that the OECD follows, South Africa was the most affected by the eurozone crisis, judging by calculations of the changes in GDP growth contribution due to direct effects of changes in export growth to the euro area in the first half of 2012 compared to first half of 2011.
In South Africa, this OECD indicator fell by 0.8 percentage points in the first half of 2012 from the first half of the previous year. It was followed by Russia, where the contribution fell by 0.7 percentage points, then by China and India, with 0.5 percentage points each.
Indonesia’s trade spillover effect was calculated at 0.3 percentage points whereas for Brazil, it was 0.2 percentage points.
The calculations took into account only the trade spillover effects. Many analysts have argued that the effects were much deeper, as the crisis also made Western European banks pull money out of certain regions, especially eastern Europe, Russia and the CIS.
‘HESITANT’ RECOVERY
Growth has begun to pick up in emerging markets but the global economy’s recovery will be “hesitant and uneven” over the next 2 years, the OECD said in its outlook published on Tuesday.
“The world economy is far from being out of the woods,” OECD Secretary General Angel Gurria said in a statement.
Gurria warned that the US fiscal cliff, if it materializes, could push the world economy into recession, while if the eurozone debt crisis is not sorted this could lead to “a major financial shock and global downturn.” In emerging markets, increasingly supportive monetary and fiscal policies have been offsetting “the drag exerted by weak external demand,” the OECD said.
It expects China to growth at 8.5% next year and 8.9% in 2014, India to advance by 5.9% and 7%, Russia to grow by 3.8% and 4.1%, Brazil by 4% and 4.1%.
South Africa is seen advancing by 3.3% and 4%, while Indonesia is expected to grow by 6.3% and 6.5%.
In the eurozone, more needs to be done to tackle the negative links between public finances, bank solvency and risks of a euro exit, the OECD said.
“In the long run, this requires a fully-fledged banking union with fiscal backstops. In the near term, recapitalization of banks should be undertaken where necessary,” it said.
Further monetary easing in required in the eurozone, Japan and some emerging markets while the US should keep its current stance, the OECD recommended, but if downside risks materialize, a “stronger response” which would include further quantitative easing would be needed.
However, it warned, such policies risk creating conditions for high leverage and bubbles and the misallocation of credit.