OECD says EU economy set to \'shrink\'

The eurozone should also cut interest rates, and countries with stronger public finances should take short-term measures to boost growth, the Organisation for Economic Cooperation and Development said.

Days before the G20 group of advanced economies meet for a summit in the French city of Cannes, and just days after a landmark summit to douse the eurozone debt crisis, the OECD called on leaders to take swift action to restore confidence in the markets.

"Much of the current weakness is due to a generalised loss of confidence in the ability of policymakers to put in place appropriate responses," the OECD said in a statement.

"It is therefore imperative to act decisively to restore confidence and to implement appropriate policies to restore longer-term fiscal sustainability..." it added.

Interest rates should also be reduced where possible to further boost growth.

"In the advanced G20 economies, interest rates should remain on hold or, where possible, be reduced, notably in the euro area," the OECD said.

"Further monetary relaxation, including through unconventional measures, would be warranted if downside risks intensify," it added.

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