The UK annual real GDP growth forecast has been downgraded to 0.5 per cent for next year in the OECD’s latest Economic Outlook report.
The forecast suggests that the UK will witness growth of 0.5 per cent in 2012 – a fall from 0.9 per cent in 2011 and 1.8 per cent in 2010. The OECD expects growth to recover to 1.8 per cent in 2013.
The bleak findings also suggest that the eurozone is heading for a recession with GDP growth predicted to fall from 0.7 per cent in Q3 to -1.0 in Q4 and -0.4 per cent in the first quarter of 2012.
Overall, GDP across all OECD countries is predicted to slow from 1.9 per cent this year to 1.6 in 2012, before recovering to 2.3 per cent in 2012.
Unemployment in the OECD area is also projected to remain high for an extended period, with the jobless rate staying at around 8 per cent over the next two years.
The report warned that measures needed to be put in place to stop the euro area debt crisis from spreading and put the weakening global activity back on track.
“Prospects only improve if decisive action is taken quickly,” said OECD chief economist Pier Carlo Padoan. “In the euro area, the risk of contagion needs to be stemmed through a substantial increase in the capacity of the European Financial Stability Fund, together with a greater ability to call on the European Central Bank’s balance sheet. Much greater firepower must be accompanied by governance reforms to offset the risk of moral hazard,” he said.