The OECD has warned in its latest Economic Outlook that both the euro area and U.S. could quickly move into recession. The organization says that only a sharp change in economic policy will prevent another recession.
The OECD reports that:
The euro area crisis remains the key risk to the world economy. Concerns about sovereign debt sustainability are becoming increasingly widespread. If not addressed, recent contagion to countries thought to have relatively solid public finances could massively escalate economic disruption
While there has been some progress among eurozone nations about how weak economies in the region could be rescued, there has been similar hope before. And, that hope has not turned into effective action.
The stand-off in Washington is the great threat to U.S. GDP growth, the OECD says:
Another serious downside risk is that no action would be agreed to offset the large degree of fiscal tightening implied by current law in the United States. This could tip the economy into a recession that monetary policy could do little to counter.
And:
Improved prospects would also depend on the enactment of a credible medium-term fiscal programme in the United States.
There is absolutely no sign that the Republicans and Democrats can agree on such a program.
Douglas A. McIntyre
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