Political chaos in Italy and the Brexit negotiations pose major risks for the European economy, the OECD has warned in its latest survey of the global economy.
The Organisation for Economic Co-operation and Development used its economic outlook to warn that while the global economy was growing rapidly, there are nonetheless significant risks on the horizon.
The warning comes amid fresh uncertainty about the fate of the Italian government.
Markets were calmer on Wednesday as they awaited developments on the formation of the new interim government.
Italian president Sergio Mattarella on Tuesday appointed former IMF economist Carlo Cottarelli as a technocratic prime minister, but it remains unclear whether he will attempt to govern for a long period or instead push the country towards fresh elections.
The country’s borrowing costs have shot up sharply amid speculation that any election would be an effective referendum on euro membership.
Video: Why has Italy’s political crisis hit markets
Although the OECD’s report was completed before the latest turns in the Italian political drama, it said “Brexit and policy uncertainty in Italy could add pressures to the expansion in the euro area”.
However, the Paris-based organisation forecast strong economic growth of 4% – equalling the historical average of recent decades – driven mainly by government spending and support from central banks.
It added that it expects the unemployment rate in developed economies to drop to the lowest level since 1980 and for wages to pick up.
The OECD also upgraded its forecasts for UK economic growth – albeit up from low levels.
It no longer expects the UK to be the slowest growing economy in the G7 group of industrialised nations this year or next.
More from Brexit
That accolade goes to Japan and Italy respectively, with the UK growing by 1.4% and 1.3% this year and next.A Treasury spokesman said: “The fundamentals of our economy are strong, and it has grown every year since 2010.
“Thanks to the hard work of the British people, we are at a turning point with unemployment at a near-record low, real wages rising, and our national debt forecast to fall.”