Why the Eurozone could derail the global economy
When it comes to risks to the global economy, the Eurozone may be the world's most wanted.
The region's economic troubles are posing risks for the rest of the world, with the Eurozone countries "grinding to a standstill" after years of belt-tightening that have left countries such as Italy and France with high unemployment, according to Catherine Mann, the chief economist of the Organisation for Economic Co-operation and Development.
There's a chance that the global economy could be revved up, as long as countries tap into growth policies such as expanding monetary policy stimulus, the Paris-based think tank said. Without such steps, the group warned, the Eurozone countries face "an increasing risk of stagnation."
Such growth-spurring policies would include a bond-buying initiative called quantitative easing (QE), a policy that was tapped by the U.S. in the wake of the recession. The Federal Reserve's policy, which pumped trillions into the economy, is coming to an end, signaling the central bank's belief that the American economy is on more solid footing.
"Monetary injection, particularly in the United States and the United Kingdom, has raised domestic demand, although even there, the shift into high gear with stronger business investment to yield higher employment and more rapid wage growth remains incomplete," Mann wrote.
Growth-supportive policies could help boost the global economy, the group said. But in the face of concerns over belt-tightening fiscal policies in Eurozone countries, the OECD said it expects muted economic growth in those countries of just 1.1 percent in 2015. In May, the organization had forecast growth of 1.7 percent.
The forecast for the U.S. is somewhat more optimistic, with the OECD noting that the recovery in America "remains robust." Growth in the U.S. economy should pick up to 3 percent next year, up from 2.2 percent in 2014.
The warning about the Eurozone's drag on the world economy comes just before Mario Draghi, the European Central Bank president, said at a Thursday press conference that the ECB governing council was supportive of looking into more stimulus programs, according to CNBC.
"Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council is unanimous in its commitment to using additional unconventional instruments within its mandate," Draghi said.
Still, the ECB council signaled no changes to monetary conditions on Thurday, noted Carl Weinberg, chief economist at High Frequency Economics, in a research note.
"We think the ECB is absolutely out of policy options to apply to the challenges facing the economy," Weinberg added. "So we expect another call for the governments to step up to the plate to fix the banks and to boost demand."