OECD slashes growth forecasts amid turmoil

The Organisation for Economic Cooperation and Development cut its global growth forecasts on Monday as it warned that Eurozone contagion had engulfed the global economy.

The OECD said in its twice-yearly economic outlook forecast that world growth will slow to 3.4% in 2012 from 3.8% this year. That marks a sharp fall from its previous outlook in May, when the OECD estimated the world economy would grow 4.2% this year and 4.6% in 2012.

The threat of even more devastating downturns looms if the euro zone does not get to grips with its debt crisis and U.S. lawmakers fail to agree a spending-reduction plan, the OECD said

In the absence of decisive action from euro zone leaders, the European Central Bank (ECB) alone has the power to contain the bloc's crisis, the Paris-based OECD said.

While solid growth in big emerging economies would provide a boost, slumping global trade would drag on Chinese output, the OECD said.

Its twice-yearly Economic Outlook forecast world growth would slow to 3.4 percent in 2012 from 3.8 percent this year.

Struggling to contain an unprecedented debt crisis, the euro zone has already entered a recession and will eke out growth of only 0.2% in 2012, the OECD said, slashing its forecast from 2% in May.

The OECD said many key questions about the euro zone's response to the debt crisis remain unresolved, raising doubts about even the bloc's most solid economies, as demonstrated by Germany's difficulties placing bonds with investors last week.

"What we see now is contagion rising and hitting probably Germany as well," OECD chief economist Pier Carlo Padoan told Reuters in an interview.

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