Act now or face new recession, warns OECD

Finance ministers from the world's richest economies met in France on Friday as a report from the Organisation for Economic Cooperation and Development, OECD, warned that a new recession in some rich countries cannot be ruled out and the eurozone crisis could deepen. 

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The report, issued on the eve of the G7 meeting in the Mediterranean city of Marseille, also revised sharply down its growth forecasts for the rest of the year for G7 nations and said it expected at least one quarter of contraction in Germany and Italy.

In addition, the European Central Bank cut its growth forecasts for the eurozone for this year and next.

European stocks fell before the meeting despite the announcement of a 322-billion-euro plan on Thursday by US President Barack Obama which was aimed at boosting the world’s largest economy.

International Monetary Fund chief Christine Lagarde welcomed the US plan and urged other countries “to act now - and act boldly - to steer economies through this dangerous new phase of the recovery."

She said a “crisis of confidence” was coming at a time when the scope for policy action was “ considerably narrower than when the crisis first erupted."

The problems in the US economy, with an OECD forecast growth of only 0.4 per cent in the fourth quarter, are reflected in most other G7 countries and are helping to cast a long shadow over the stock markets.

Obama's proposals failed to stir any excitement in Asian markets, the first to open after his speech. Tokyo closed 0.63 per cent lower after figures showed Japan's economy shrank more than first thought in the April-June quarter.

European stock markets also dipped in morning trade, with falls in London, Frankfurt and Paris.

US Treasury Secretary Timothy Geithner called on Friday for Europe to take stronger action to generate confidence that it can resolve its spreading debt and deficits problems.

The G7 meeting comes at a time of high political tension in Europe's major economies over the debt crisis, with governments having to railroad reform and austerity measures through parliament in the face of major opposition.

Lawmakers in France, Spain and Italy have all passed legislation in recent days designed to demonstrate their determination to tackle the debt crisis which has racked the eurozone.