Brussels, 04/08/2003 (Agence Europe) - In its recently published 2003 OECD Economic Survey of the Euro Area, the Organisation for Economic Cooperation and Development is very pessimistic about current economic performance and short-term prospects for the eurozone, commenting that “the economy is likely to face headwinds for some time”.
The OECD says “the euro area has shown less resilience” to the shocks to the global market over the last three years, and is facing “sluggish” demand at present. Without suggesting figures, the OECD suggests April 2003's growth forecasts (1% for 2003 and 2.4% for 2004) be revised down, with sources in Paris, where the OECD is based, suggesting that eurozone growth will be a little under 1% in 2003, not rising above 2% in 2004. Hardly a very optimistic prospect, given that the report notes that the economy is likely to face turbulence for some time to come because of the rise in the dollar against the euro and structural and institutional rigidities.
The OECD expresses serious concern about the future. Falling oil prices are likely to lead to a fall in inflation (forecast at 1.5% in 2004) and rising consumer spending, but “there are also major downside risks”, such as “a possible wave of company restructuring, with a labour shake-out and rising unemployment” which might further depress consumer confidence. “On the external side, the upswing in the US economy may stall. If, moreover, financial markets consider the widening US current account deficit unsustainable in the medium run, a further appreciation of the euro exchange rate vis-à-vis the dollar could occur. The euro area economy could perhaps weather one or another of these downside risks, given the scope for monetary policy to respond. However, coping with a combination of several adverse shocks would be very challenging for policy makers.” The OECD recommends taking a free market approach, increasing competition in services, further liberalising the post office and railways and introducing greater flexibility in the labour market.