The OECD revised the 2012 growth prediction forecast it made in May from 0.5% to -0.7%, the most severe of several forecast revisions made by the organisation in its latest update.
The organisation estimates Q3 GDP will bounce back into positive territory with a growth rate of 2.4%, before turning negative again (-1.4%) in Q4.
However, it said the forecast “does not account for the likely shift of activity from Q2 to Q3 due to the additional Diamond Jubilee bank holiday in June.”
“The impact of the Olympics may also not be fully accounted for in these forecasts.”
The OECD also lowered its 2013 GDP forecast for Germany from 1.2% to 0.8%, saying the eurozone crisis has damaged trade and confidence and will continue to do so throughout the year.
It said the currency bloc’s debt crisis was increasingly weighing on core economies.
“The loss of momentum at the G7 level may persist through the latter half of this year, with the recession in the euro area and associated trade and confidence headwinds enduring,” the OECD said.
The OECD called for more supportive monetary policy, especially in the eurozone, ahead of today’s expected announcement of bond purchases by the European Central Bank.
“Where activity is weak and inflation under control, policy rates should be cut if they are still above zero, and asset purchase programmes could be expanded.
On a more optimistic note, the US economy will continue to grow, it said, helped by improvements in the housing market and some progress on tackling its debt. But the forecast of 2.3% GDP growth was down marginally from an estimate of 2.4% in May.