(CEP News) Frankfurt - The Organization for Economic Cooperation and Development called for the European Central Bank to bring its key policy rate down further and finally take quantitative easing measures to help support the economy.

“The grim outlook for economic activity in the euro area and widespread evidence of falling inflation call for exhausting the remaining scope for further cuts,” the OECD said in a report published on Tuesday. “With the bleak economic outlook, quantitative easing should be used to support demand.”

On Thursday, the ECB’s Governing Council is expected to meet and announce a further 50 basis-point cut to its main refinancing rate.

Furthermore, with senior ECB members saying that the central bank may consider other measures after rates have reached their lowest point, some market participants and economists believe the central bank could possibly announce that a decision regarding quantitative easing has been made

The OECD report also commented on the UK, saying that, “if economic circumstances deteriorate more than projected, further fiscal measures would be warranted.”

However, the report added that any further spending would need to be linked with a stronger commitment towards “a robust fiscal consolidation once the recovery takes hold.”

Looking beyond Europe, the OECD forecast that all 30 members comprising the OECD zone will suffer a recession this year and that the collective economies are likely to contract by 4.3% in 2009 and fall by a further 0.1% in 2010.

“This bleak scenario is driven by the strong, negative response of private global demand to a combination of the credit squeeze, negative wealth effects stemming from lower house and equity prices and a generalized loss of confidence,” OECD chief economist Klaus Schmidt-Hebbel wrote in the publication.

However, a “strong recovery” is expected from the second half of 2010. The OECD added that the global economy would not fall again into a “great depression”.

Written by CEP News European Staff, eunews@economicnews.ca, edited by Stephen Huebl, shuebl@economicnews.ca

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