OECD sees Eurozone recovery; cautionary on deflation risk

The Eurozone will be on the mend in the next few years, recovering slowly from the recent recession. Unemployment remains high, however, and there is a strong need for reforms. This is from the new Economic Outlook published Tuesday by the Organization for Economic Cooperation and Development (OECD). The Outlook is positive on economic recovery, but remains worried about growth rate and unemployment as well as other legacies from the crisis. OECD Secretary-General Angel Gurria said during the annual Ministerial Council Meeting and Forum in Paris that "advanced economies are gaining momentum and driving the pick-up in global growth, while once-stalled cylinders of the economic engine, like investment and trade, are starting to fire again." The Eurozone will see a growth rate of 1.2 percent in 2014 and 1.7 percent in 2015, according to projections. China is predicted to once again enjoy the fastest growth rate among BRIICS countries (China, India, Indonesia, Russia and South Africa), with rates just below 7.5 percent in 2014 and 2015. For the Netherlands, the OECD predicts an economic growth rate of 1 percent this year. Unemployment will reach 7.6 percent this year, and will stabilize on that level next year. Unemployment reached record levels during the recent crisis, but is starting to fall. Across the OECD area, however, more than 44 million people are expected to remain unemployed by the end of 2015, 11.5 million more than before the crisis. There is a danger that the Eurozone will land in a period of deflation, according to the OECD. Persistent price cuts are harmful for economic recovery and could increase euro area debts. Among the solutions posited by the OECD in the Outlook, policy requirements will help strengthen economies for further recovery. "Monetary policy must remain accommodative, especially in the euro area, where a further interest rate reduction is merited, given low and falling inflation", the report states. Improvements to the health of the banking sector as well as sustaining momentum for further reforms are some crucial steps needed to curtail financial vulnerability in Europe, the OECD said. "With the world still facing persistently high unemployment, countries must do more to enhance resilience, boost inclusiveness and strengthen job creation. The time for reforms is now: we need policies that spur growth but at the same time create opportunities for all, ensuring that the benefits of economic activity are broadly shared", Mr. Gurria said.