The global economy is expected to make a hesitant and uneven recovery over the next two years with a slowdown or even recession hovering over the euro area, the Paris-based Organization for Economic Co-operation and Development (OECD) reported Tuesday.
"The global economic outlook has deteriorated again," OECD Secretary-General Angel Gurria said at the launch of the new Economic Outlook.
"The risk of a new major contraction cannot be ruled out. A recession is ongoing in the euro area," said OECD Deputy Secretary-General and Chief Economist Pier Carlo Padoan.
The main reasons for a slow recovery include private sector leveraging, fiscal consolidation, euro area crisis as well as EMEs (emerging market economies) slowdown, he said.
"The U.S. economy is growing but performance remains below what was expected earlier this year. A slowdown has surfaced in many emerging market economies, partly reflecting the impact of the recession in Europe," Padoan said.
"The euro area crisis remains the greatest threat to the world economy at present," the chief economist said.
The Economic Outlook report projected the world economy would grow by 2.9 percent this year and by 3.4 percent in 2013, down from an initial forecast of 3.4 percent and 4.7 percent respectively.
The GDP growth across the OECD was expected to match 2012 growth of 1.4 percent in 2013, before gathering momentum to 2.3 percent for 2014.
Economy of the 17 eurozone member states would contract by 0.4 percent in 2012 and by 0.1 percent in 2013 "despite recent policy measures that have damped near-term pressures," according to the report.
As to European measures to address debt crisis and stimulate growth, OECD chief economist urged "ambitious reforms" able to boost wealth creation and make the adjustment more symmetric.
"Adjustment of deep-rooted imbalances across the euro area has begun, but much more is needed to ensure long-term sustainability, including structural reform in both deficit and surplus countries," the OECD said.
Accordingly, the organization suggested that "progress towards a fully fledged banking union is essential to complete the architecture of the euro area and to facilitate disentangling sovereign and banking sector fragilities."
Provided the "fiscal cliff" is avoided, U.S. growth is projected at 2 percent in 2013 before rising to 2.8 percent in 2014.
China is expected to grow by 8.5 percent in 2013 and 8.9 percent in 2014. GDP growth is also expected to gather steam in the coming years in Brazil, India, Indonesia, Russia and South Africa.
In the challenging economic context, the OECD said the labor market still suffered from feeble economy and predicted a growing trend of unemployment rate by 2013.
"Governments must act decisively, using all the tools at their disposal to turn confidence around and boost growth and jobs in the United States, Europe and elsewhere," Gurria stressed.
"A positive policy response, avoiding the downside scenario and securing more sustainable growth, is possible. It should be based on the full use of available policy tools: monetary, fiscal, and structural," the organization said.
If decisive policy actions are taken to improve business and consumer confidence, and to boost growth and jobs worldwide, a positive scenario could be expected, the organization said.
The rapid and broad implementation of structural reforms, not least in labor and product markets, is key to this scenario, according to the OECD.
"Looking beyond the forecast presented in this Economic Outlook, the deeper policy challenge facing governments is to guide the global economy onto a new, stronger long-term path," said Padoan.