OECD cautions on growth in Eurozone
The Organisation for Economic Co-Operation and Development said on Thursday, that the eurozone economy must reform to address its “Achilles heel” of slow economic growth if it is to capitalise on the benefits of a single currency. In its latest regional survey, the Paris-based body charged with improving the economic fortunes of its 30 wealthy member states, acknowledged that the recovery in the eurozone had “taken hold” and that growth in the first half of 2006 had been well above potential.

However, it claimed as “still modest”, its forecast for economic growth of 2.6 per cent in 2006, falling to 2.2 per cent in 2007. On current trends, growth in per capita output in the region would reduce from 1.5 per cent to 0.5 per cent per annum in the 2020s, the report warned. The OECD said: “Extrapolating the low growth of the past decade is bound to produce a bleak outlook for the future. But it highlights the point that member states will need to take further steps to boost labour supply and productivity growth in order to avoid falling further behind.”

Faster growth in the US economy had led to an increasing difference in incomes between the two areas. In 2005, GDP per capita in the euro area was 29 per cent below the US level. Blaming the eurozone economy’s low growth potential and inability to absorb shocks on the euro was “misguided”, the report said, adding: “The economic problems are mainly structural; the solutions therefore are largely in the hands of individual member governments.”