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Europe in need of a miracle?

Tuesday, November 25, 2014 - 02:29

The OECD has forecast the global economy will gradually improve over the next two years. But as David Pollard reports, there was bad news for Japan and the euro zone, although Germany escaped recession.

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There was no promise of divine intervention to help Europe when Pope Francis addressed the European parliament. There was, though, a recognition the continent needs new impetus. (SOUNDBITE) (Italian) POPE FRANCIS SAYING: (SOUNDBITE INCLUDES SHOTS OF MEPS LISTENING) "Despite a larger and stronger Union, Europe seems to give the impression of being somewhat elderly and haggard, feeling less and less a protagonist in a world which frequently regards it with aloofness, mistrust and even, at times, suspicion." He's not the only one to be joining the debate. The OECD warns the euro area risks ''persistent stagnation''. Globally, it's a rosier outlook from the Paris-based organisation. It sees the world economy growing by 3.3 per cent this year, 3.7 next. Europe is a different story - the worry compounded by the risk of deflation. The OECD sees euro area growth at just 0.8 per cent. That said, latest data confirms Germany skirted around recession in Q3 - and that French business sentiment is on the rise this month. And, at least where Germany is concerned, it's an image of the economy with which finance minister Wolfgang Schaeuble is at odds. Talk, he says, is dangerous. (SOUNDBITE) (German) GERMAN FINANCE MINISTER, WOLFGANG SCHAEUBLE, SAYING: "We have more growth than in previous years and that's why it would be a grave mistake to provoke a crisis by thoughtless talk. I can only warn of that." Lloyds chief economist Trevor Williams is less sanguine. (SOUNDBITE) (English) Trevor Williams. Chief Economist, Commercial Banking, Lloyds Bank. ''The answer is structural reform allied with the monetary easing and maybe some more fiscal stimulus ahead. We all know that, but structural reform is very difficult to do. On the monetary side, well clearly Mario Draghi's pulling all the levers that he can.'' Kerry Craig of JPMorgan says the ECB chief may wait and see for a while longer before pulling the trigger on QE - but that it's not all bleak. (SOUNDBITE) (English) Kerry Craig, Global Market Strategist, JPMorgan AM ''I think looking forward to that December TLRTO will be critical, and to see how much that take-up is done by the banks. And all that kind of thing will hinge coming into next year creating a more favourable for investors. At the same time you should see a weaker euro.'' And if Europe does need a miracle, it might well be the euro. The OECD says a gradual ten per cent depreciation in the currency over the next two years could boost growth by an extra 0.2 per cent in 2015 - twice as much in 2016.

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Europe in need of a miracle?

Tuesday, November 25, 2014 - 02:29