Eurozone to Drag Down Global Economic Growth in 2015

The global economy will remain relatively weak, with the China and US-led recovery being offset by the Eurozone, which is "grinding to a standstill".

The latest global outlook from the Paris-based OECD urges the European Central Bank (ECB) to replicate the fiscal stimulus undertaken by the US Treasury and to delay efforts to pare back on public borrowing, which will damage GDP growth.

The think-tank said global growth will reach 3.3% this year, 3.7% in 2015 and 3.9% in 2016. China will lead growth in 2015 and 2016, returning 7.1% and 6.9%, while the Eurozone's projections pale in comparison.

Of the OECD nations, only crisis-hit Russia (0%) will grow more slowly than France next year (0.9%), while the Eurozone itself is expected to return growth of just 1.1% in 2015.

"The ECB must act decisively to support growth and head off deflation," was the stark message from the OECD, which encouraged the bank to embark on "open-ended or large-scale asset purchases", including sovereign bonds, asset-backed securities and covered bonds, and investment-grade corporate bonds.

Such measures would mark a drastic scaling-up of the ECB's current strategy, the early stages of which have been rolled-out over the past month.

On 27 November, the ECB confirmed that it bought €1.704bn ($2.16bn, £1.34bn) in covered bonds in an effort to get more liquidity to Eurozone banks. However, analysts have warned that it must up the pace of its programme significantly if it is to return to its target balance sheet level of €1tn.

In what marks a clear break from previous utterances – which recommended fiscal tightening – the OECD has encouraged governments to become more expansionary in their policies. It has also recommended stalling on "premature tightening" of monetary policy, nodding to the expected interest rate hikes in the UK and US.

The Chief Economics of the OECD Catherine Mann wrote, in a note accompanying the release: "With regard to fiscal policy, the US and the euro area as a whole, and specific countries in particular, have already tightened the fiscal belt quite a bit. Fiscal stance going forward needs to balance fiscal sustainability against possible downside effects on short-term growth and confidence, factors that could put the economy into a skid.

"The characteristics of debt obligations bears close scrutiny, as does the type of fiscal spending and tax choices. Fiscal spending in the near term to support innovation, education, and infrastructure will both support near-term growth, as well as turn back the legacy of low potential output and complement the engines of trade and investment."

The OECD's growth readings correlate largely with the most recent figures from both the European Commission and the International Monetary Fund (IMF).

The UK and US are expected to continue along their moderate trajectory for the coming two years, with the US economy set to expand by 3.1% and 3% and the UK by 2.7% and 2.5% over 2015 and 2016, respectively.

Despite the sanctions regime imposed upon it by the west – coupled with its on debilitating embargoes on the import of many western goods – Russia is predicted to return to 2% growth by 2016.

The three fastest-growing economies over 2015 and 2016 will be China, India and Indonesia, with Mann speaking approvingly of the altered Chinese investment policy, which she said has "started to slow to a sustainable speed".

Speaking broadly on emerging market prospects, she said: "India's system-wide reforms could solidify the shift to higher gear growth if implemented. Brazil is emerging from a short recession in the first half of 2014; resolution of political uncertainty should create an environment where the right policies could put the economy back on track. Russia is in go-slow mode, with the economy's course strewn with obstacles, including low oil prices.

"Against this subdued background are short-term risks of volatility, medium-term concerns about the legacy of debt and recent credit expansion, and long-term worries about the rate of growth of potential output."