• The OECD has confirmed the widening gap within the Eurozone.

  • It calls for austerity to be applied in the correct dose.

The OECD’s “Interim Assessment” presented on Thursday highlighted yet again the divergence in the Eurozone between vigorous growth in Germany (2.3% q-o-q annualised in Q1 and 2.6% in Q2) and weak or negative growth in other countries. French GDP will be flat in H1 (with a contraction of 0.6% in Q1 followed by growth of 0.5% in Q2), whilst the Italian economy will continue to shrink (-1.6% and -1% respectively). Overall, the eurozone’s three biggest economies will see growth (0.4% in Q1 and 1% in Q2) that will be weaker than in the US (3.5% and 2%) and Japan (3.2% and 2.2%). Echoing the conclusions of the latest Council of Europe meeting (see The Week in the Eurozone, 23 March 2013), Pier Carlo Paodan, the Chief Economist of the OECD, noted that commitments to cut structural budget deficits needed to be respected “without tightening austerity”. He believes that the main threat to the scenario for the eurozone is an increase in long-term unemployment. Under such circumstances it is essential to do everything possible to stop its rise in order to support consumer spending, production and confidence. Failing this, popular discontent will continue to increase, creating the risk of a long-lasting backlash against current structural consolidation policies.