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European debt crisis dragging down world economy, report says

September 06, 2012|By Jim Puzzanghera
  • European Central Bank President Mario Draghi during a news conference in Frankfurt, Germany, following a meeting of the ECB governing council on the European financial crisis.
European Central Bank President Mario Draghi during a news conference… (Michael Probst / Associated…)

WASHINGTON — The European debt crisis is pushing the continent into recession and dragging down the global economy, according to a forecast released Thursday by the Organization for Economic Cooperation and Development.

Growth in the world's seven major industrialized economies is expected to slow to just 0.3% in the third quarter of this year, and 1.1% in the fourth quarter, the group said.

Deep problems in Europe are driving that slowdown, with the Eurozone's three largest economies -- Germany, France and Italy -- forecast to contract a combined 1% in the third quarter and 0.7% in the fourth quarter.

"The slowdown will persist if leaders fail to address the main cause of this deterioration, which is the continuing crisis in the euro area," said OECD chief economist Pier Carlo Padoan.

The report came as the European Central Bank said Thursday taht it had agreed to launch a new round of bond buying to stabilize the Eurozone's economy. The ECB also lowered its economic forecast for the rest of the year and continued to hold its benchmark interest rate at a record low of 0.75%.

"Economic indicators point to continued weak economic activity in the remainder of 2012, in an environment of heightened uncertainty," ECB President Mario Draghi said Thursday. "Looking beyond the short term, we expect the euro area economy to recover only very gradually."

The OECD forecast the U.S. economy to grow faster than that of any of the other Group of 7 major industrialized nations, which includes Japan, Germany, France, Italy, Canada and Britain.

The U.S. economy will grow at 2% in the third quarter and 2.4% in the fourth quarter, the OECD said. The Commerce Department said last month that the U.S. economy grew at a 1.7% annualized rate in the second quarter.

But Europe's problem are harming U.S. growth and economic conditions worldwide, and will continue to push unemployment higher, the OECD said.

"Resolving the euro area's banking, fiscal and competitiveness problems is still the key to recovery," Padoan said.

US Real GDP Growth Chart

US Real GDP Growth data by YCharts

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