A stumble towards global recession?

Entrepreneurs could be forgiven for tuning out when big global bodies such as the IMF, the World Bank and OECD release yet another missive on the global economy.

Often these things are so big picture and so frequently updated that it’s hard to know which body to listen to. The result, at least sometimes, is that all of them get ignored.

But this morning’s economic forecast from the OECD should not be taken lightly. It paints a very, very grim picture of the global economy and what is in store for 2013.

The headline news is that the OECD has sharply trimmed its forecast for global growth in 2013 from 4.2% to 3.4%, with Europe to remain in recession until well into 2013 and US growth under a cloud due to the looming “fiscal cliff” crisis.

The group is unusually direct about the threat of another global recession, saying “the risk of a new major contraction cannot be ruled out.”

OECD Secretary-General Angel Gurría cited the seemingly never-ending European debt crisis as the biggest threat to the global economy.

“The world economy is far from being out of the woods,” he said overnight.

“The US ‘fiscal cliff’, if it materialises, could tip an already weak economy into recession, while failure to solve the euro area crisis could lead to a major financial shock and global downturn. Governments must act decisively, using all the tools at their disposal to turn confidence around and boost growth and jobs, in the United States, in Europe, and elsewhere.”

The OECD has slashed its growth forecasts for the Australian economy too. After tipping growth in 2013 would be 3.7% just six months ago, it’s now tipping growth of 3%.

In addition, it says the Reserve Bank is likely to need to cut interest rates two more times to an all-time low of 2.75% to help stimulate the economy, given Labor’s determination to return the federal budget to surplus.

Lower rates are great, but if the OECD forecasts are right the rate cuts will come with a big price – continued poor confidence.

The OECD might like governments to throw everything at their economies to lift confidence, but it’s not that easy.

James Thomson is a former editor of BRW’s Rich 200 and the publisher of SmartCompany and LeadingCompany.


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