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OECD dials back euro zone growth forecast

The EU and OECD give France, Spain and other countries more time to meet austerity targets.

Eu oecd recommendations euro zone crisisEnlarge
European Commission President Jose Manuel Barroso gestures during his press conference on May 29,2013 at the EU Headquarters in Brussels. The European Commission increases the pressure on several countries, particularly France, to speed up structural reforms seen as the only reliable way to boost growth and job creation. the Commission released its latest economic recommendations for member states Wednesday. (Georges Gobet /AFP/Getty Images)

BRUSSELS, Belgium — The Organization for Economic Cooperation and Development has dialled back predictions about the resumption of growth in the euro zone and called for Spain, France, and other countries more time to meet their austerity targets.

The OECD's twice-yearly economic outlook offers more grim reading for the euro zone, predicting the bloc's economy will shrink by 0.6 percent this year compared to 0.1 percent in its last forecast back in November. The expected recovery next year will also be slower than expected — just 1.1 percent.

The figures highlight the growing gap between Europe and the United States, where a relatively robust recovery is under way with 1.9 percent growth seen in 2013 and 2.8 percent next year.

To counter the decline, the OECD urged the European Central Bank to take pro-growth action such as cutting interest rates bellow zero to encourage banks to lend to the real economy by effectively charging them for holding their money at the ECB.

The European Commission has also signaled the need for a shift in policy to pull Europe out of recession in a series of country-specific recommendations released on Wednesday.

On Wednesday the European Union's executive body called for EU countries to focus more on economic reforms that could spur growth, while giving some more leeway to ease up on the austerity measures needed to bring public finances into order.

France, Spain, Poland, Slovenia were given two extra years to bring down their budget deficits to the EU target of 3 percent of GDP. Portugal, and the Netherlands each got a one-year extensions.

"Now is the time to step up the fundamental economic reforms that will deliver growth and jobs, which our citizens, especially our young people, anxiously expect," said Jose Manuel Barroso, president of the European Commission. "This is the only way to address the two lasting legacies of this crisis – the serious loss of competitiveness in many of our Member States and persistent unemployment."

The OECD report said France's economy has entered its second recession in four years, contracting 0.2 percent in the first three months of 2013

"The extra time should be used wisely to address France's failing competitiveness... I believe there is a growing consensus now in France about the need for those reforms," Barroso said. 

The OECD also had some grim predictions for Madrid: they expect the Spanish economy to contract 1.7 percent this year, worse than the government's own 1.3 percent estimate.

It also predicted that Spain would miss its deficit targets over the next two years with its current policies, Reuters reported

Barroso said there was "no room for complacency" from European's struggling nations, Public Service Europe reported.

"We need to reform, and to reform now," Barroso said. "The cost of inaction will be very high. The benefit of taking action now is that Europe will emerge stronger from this crisis."

Spain's unemployment rate is expected to hit 28 percent by 2014. 

More from GlobalPost: Euro zone debt crisis could see 'watershed year' in 2013, says Standard & Poor's

http://www.globalpost.com/dispatch/news/regions/europe/130529/spain-france-extensions-austerity-push-eu-oecd