The Organisation for Economic Cooperation and Development (OECD) on Tuesday urged Europe to act quickly resolve the Eurozone debt and structural crisis as this presented the biggest risk to global economic growth and the OECD warned that delay in acting would further jeopardise European economies and also negatively affect other countries.
"The crisis in the euro zone remains the single biggest downside risk facing the global outlook," OECD Chief Economist Pier Carlo Padoan said upon publication of the Organisation's "Economic Outlook".
While emerging economies can look forward to a cyclical uptick in activity over the next 18 months, with the United States and Japan also reporting moderate growth, the European area is expected to witness a contraction in economic activity, the report said.
"The global economy is gradually gaining momentum, but the recovery is fragile, extremely uneven across different regions and could be derailed by the crisis in the euro area," the OECD said.
The Paris-based Organisation comprises 34 of the world's most industrialised nations and its forecasts and policy recommendations are highly considered.
"With slow growth, high unemployment and limited room for manoeuvre regarding macroeconomic policy space, structural reforms are the short-run remedy to spur growth and boost confidence," OECD Secretary-General Angel Gurr? a said here at the launch of the latest report.
Average Gross Domestic Product (GDP) is expected to slow to 1.6 percent in 2012 from 1.8 percent in 2011 throughout the OECD area, but GDP should expand by 2.2 percent in 2013.
Growth in the United States should be a solid 2.4 percent this year, rising to 2.6 percent in 2013. In Japan, GDP is expected to boost by 2.0 percent in 2012, but ease to 1.5 percent 2013.
However, Euro area GDP, which includes the 17 nations that use the Euro currency, is projected to contract by 0.1 percent this year, before recovering to 0.9 percent growth in 2013.
"In Europe, business and household confidence is weak, financial markets are tight and the adverse impacts of fiscal consolidation on near-term growth may be significant, particularly in countries hardest hit by the euro crisis," the OECD said.
"Recovery in the healthier economies, while welcome, is not strong enough to offset flat or negative growth elsewhere in Europe. Weak competitiveness must be addressed in those countries with large external deficits, while structural adjustment and higher wages in surplus countries would contribute to a growth-friendly rebalancing process," the report added.
The OECD urged the European Union, which meets this week at Summit level in Brussels, to adopt structural reforms in the education, innovation, competition and ecological growth sectors.
It also recommended protection measures to prevent a contagion of the Euro financial crisis and it urged boosting of the European single market to support more economic activity.
The OECD also called for better use of the European Central Bank balance sheets to support combating the crisis.
"The OECD warns that failure to act today could lead to a worsening of the European crisis and spill-overs beyond the euro area, with serious consequences for the global economy. Avoiding such a scenario requires action to be taken both at country and supranational level," the Economic Outlook said.