OECD: EU debt crisis a primary threat to world economy

The OECD released its twice-yearly Economic Outlook on Tuesday in which it cut the global growth forecast and warned that the Eurozone debt crisis is a greater threat to the world economy than the looming US fiscal cliff.

"After five years of crisis, the global economy is weakening again," OECD's chief economist Pier-Carlo Padoan warned. "The risk of a new major contraction can't be ruled out."

The Paris based organization reduced its global growth forecast for 2012 from 3.4% seen in May to 2.9%, and for 2013 from 4.2% to 3.4%. It also suggested that the Eurozone economy should start growing again in 2013 and that the US should witness a expansion of 2% next year and of around 3% in 2014. An intensification of the debt crisis in the Eurozone could however push the area into a profound recession and damage US recovery.

The OECD urged governments not to cut spending too much, as it hurts growth. Central banks in the Eurozone, Japan, China and India were advised to boost stimulus to prop up their ailing economies. The organization also allowed for the possibility of Greece not being able to strictly adhere to its reform plan, should recession deepen more than expected.

“The agreed consolidation measures should be put in place, but if growth proves lower than assumed in the government's fiscal plans, then the automatic stabilisers should be allowed to operate, even if this means missing the set targets,” the OECD stated. 

Spain pays lower rates in bond auction

Spanish Treasury held a debt sale on Tuesday during which it managed to auction 4 billion euros worth of 3- and 6-month government bonds at lower interest rates than seen at the previous auction.

2.6 billion euros of 6-month bonds were sold at an average yield of 1.66%, compared with 2.02% the country had to pay at the previous auction. Also 1.5 billion worth of 3-month bonds were auctioned. These yielded 1.25%, down from 1.41% seen at the previous sale.

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