HispanicBusiness

The crisis in the eurozone risks derailing the global economic recovery, the Organization for Economic Cooperation and Development (OECD) said in its latest economic outlook Tuesday, which predicts a full year of recession in the common currency area.

At the end of last year, the OECD predicted the eurozone would eke out 0.2 percent growth this year and 1.4 percent in 2013. The OECD now predicts the eurozone economy will shrink by 0.1 percent this year and post growth of only 0.9 per cent growth in 2013.

By contrast, the outlook for the United States continues to improve, with the OECD forecasting the US economy to grow 2.4 per cent this year and 2.6 percent in 2013, up from 2.0 percent and 2.5 percent in its November forecast.

Most emerging economies also continued to show strong activity, although some countries faced inflationary pressures.

"The crisis in the eurozone remains the single biggest downside risk facing the global outlook," the OECD's chief economist, Pier Carlo Padoan, said.

The 17-nation eurozone risked falling into a "vicious circle involving high and rising sovereign indebtedness, weak banking systems, excessive fiscal consolidation and lower growth," the OECD, which tracks economic developments in 34 member countries said.

The eurozone presented a contrasting north-south picture.

While Germany's economy is forecast to grow 1.2 per cent this year and 2.0 percent in 2013, Spain's gross domestic product is predicted to shrink by 1.6 percent and 0.8 percent.

And while German unemployment continues to fall -- from 5.7 percent last year to a forecast 5.2 percent in 2013, Spain's is predicted to climb past 25 percent next year.

The report comes on the eve of a summit of European Union leaders to discuss ways to restore growth, amid fears that Greece may leave the eurozone and concerns about the solvency of Spanish banks.

Germany is insisting on fiscal consolidation and structural reforms to improve competitiveness, while France is calling for more infrastructure spending and eurobonds.

"Finding a careful balance between spending cuts and revenue increases is critically important," the OECD said.

The Paris-based think thank suggested a combination of measures, including structural reforms, further enhancement of the eurozone firewall, and wage increases in countries with surpluses.

The OECD also suggested using the eurozone bailout fund to directly recapitalize European banks and that the European Central Bank play a stepped up role -- by increasing its government bond-buying program if tensions in bond markets increased, and by easing monetary policy.