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The crisis in Europe is becoming more and more serious, warns the latest SEB Nordic Outlook, as conflicting interests and deficient problem awareness has blocked crisis management efforts and created political dithering.

According to the report, the world economy will be close to recession in 2012 and growth is expected to be lacklustre in 2013 as well. The Gross Domestic Product (GDP) of the 34 industrialised OECD countries will grow by 1.2 percent in 2012 and 1.8 percent in 2013.

“The risk of worse performance is greater than the probability of stronger GDP growth, mainly due to the euro zone crisis and worsened credit conditions,” says the report.

While the euro zone will show negative growth in 2012 (-0.4 percent), the US economy will grow more strongly.

One bright spot in the economic gloom will be China, with growth of about 8 percent, but because of problems in the construction sector, risks have increased in that country as well.

“There is no quick fix for the problems of the world and the euro. The journey from imbalance to balance and greater normality will take several years, will be troublesome and will squeeze living standards in the West,” says the report.

Right now the world economy needs more stimulus, underscores the report. Slower growth will make the task of achieving the established fiscal tightening targets more difficult and will increase the political risk premium.

“We do not anticipate further austerity measures; the risks are too large and may create a downward economic spiral, leading to further decline in growth and social unrest. We expect the impact of fiscal austerity in the OECD countries to be more than 1 percent of GDP in both 2012 and 2013,” says the SEB in its report.

Although there is very limited room for stimulus, measures to combat high unemployment will enjoy high priority.

“The future of the euro is uncertain, and this will hamper growth and force businesses and financial institutions to prepare for the unthinkable: that the euro in its current shape may disappear,” warns the SEB report.

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