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Experts scale back growth forecasts

The OECD has scaled back its economic growth forecasts with a warning that bullish financial markets are failing to price in mounting global risks.

The international think-tank said continued weakness in the euro area and uncertainty caused by conflicts in Ukraine and the Middle East meant it was now more cautious about prospects for advanced economies this year.

It reduced its May projection for the UK by 0.1% to 3.1%, but this was the smallest revision among the major world economies after the United States was cut by 0.5% to 2.1% and the euro area slashed by 0.4% to 0.8%.

The OECD is slightly more optimistic about the UK next year - raising its forecast by 0.1% to 2.8% when many other nations are being downgraded.

It said the global economy was growing at a moderate and uneven pace, with a growing degree of divergence between the major nations.

Among the key euro area economies, Germany is forecast to grow by 1.5% in both years, France by 0.4% in 2014 and 1% in 2015, while Italy will see a contraction of 0.4% this year and a gain of just 0.1% in 2015.

The OECD called on the European Central Bank to take a "more vigorous" approach to monetary stimulus by introducing quantitative easing.

Geopolitical risks have grown in recent months and the OECD said this was at odds with the recent bullishness of financial markets after record highs on Wall Street and a 14-year high for London's FTSE 100 Index.

It said: "A number of equity markets are reaching record highs, sovereign bond yields in several countries are near all-time lows and implied share price volatility in the United States and Europe is around pre-crisis levels.

"This highlights the possibility that risk is being mispriced and the attendant dangers of a sudden correction."

The OECD pointed out that many emerging economies remain vulnerable to financial market shocks given the build-up of debt in recent years.

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