OECD: Central banks must step in as recovery stalls

The OECD has urged global economies, particularly Europe, to take "credible steps" to curtail debt as it said the recovery has ground to a halt.

In its latest Interim Economic Assessment, chief economist Pier Carlo Padoan said although growth in emerging economies reamains strong, the recoveries in major industrialisd economies have come close to a halt despite the fiscal and structural reform measures already put in place.

"Growth is turning out to be much slower than we thought three months ago, and the risk of hitting patches of negative growth has gone up," said Padoan.

He recommended central banks keep rates at present low levels or reduce them further where there is scope. He also said the withdrawal of monetary tightening in emerging economies is favourable.

On the fiscal side, however, more needs to be done in to rebuild confidence, he added.

"Medium-term consolidation plans must be accompanied by growth-friendly structural reforms. Credible fiscal frameworks may create room for short-term fiscal stimulus if needed.

"The governance of the euro area in economic and fiscal matters must be improved. The process of capitalisation of banks should be accelerated, and support to their short-term funding needs should be addressed," Padoan said.

He expects economic growth in the G7 economies excluding Japan to remain at an annualised rate of less than 1% in the second half of 2011.