OECD Warns On Contagion from Eurozone, Low Confidence

The OECD has warned that contagion from the Eurozone sovereign debt crisis could escalate to massive economic disruption if it is not addressed, said Chief Economist Pier Carlo Padoan in the Economic Outlook report.

The euro area appears to be in a mild recession and concerns about sovereign debt in the monetary union are becoming widespread, said Padoan. Above all, confidence has dropped sharply as scepticism has grown that euro area policy makers can deal effectively with the key challenges they face, he said.

An upside scenario would only materialise with a credible commitment by euro area governments that contagion would be blocked by well-capitalised banks and decisive policies to ensure smooth financing at reasonable interest rates, says the report.

Real GDP growth in the Euro area is expected to be 1.6 percent in 2011, by 0.2 percent in 2012 and by 1.4 percent in 2013, says the OECD.

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