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25 June 2009

OECD: Global recession nearing end

There are two issues in the forefront when it comes to the global recession. One is when will it end, and the other is when will it recover?

On the first part, the global recession is close to bottoming out, the Organization for Economic Cooperation and Development (OECD) said this week. The second part is a bit murkier, as the recovery will be weak unless governments do more to remove uncertainty over banks’ balance sheets, OECD said.

In its half-yearly economic outlook, the Paris-based organization said it expects its member countries’ economies to shrink by 4.1% this year, with only government rescue measures heading off an even worse decline.

That is a slight improvement from the OECD’s last forecast in March of a 4.3% decline this year and is the group’s first upward revision to its forecasts in two years, Secretary General Angel Gurria.

“A really disastrous outcome has become more of a remote risk,” said OECD acting economics department head Jorgen Elmeskov.

But the recovery “is likely to be both weak and fragile for some time,” Gurria said.

The OECD now expects the U.S. economy to shrink by 2.8% this year after 1.1% growth in 2008. Japanese output is likely to contract by 6.8% this year, and the 16 nation euro-zone will likely shrink by 4.8%.

The OECD forecast a return to growth in all three regions next year, with overall growth across its membership expected to average 0.7% in 2010, according to the report. That also represents an improvement from the OECD’s last forecast of a 0.1% contraction next year.

World economic growth, which the OECD defines as its members plus Brazil, Russia, India, and China, will rebound to 2.3% next year from a decline of 2.2% in 2009, according to the latest OECD forecast.

The speed of an economic rebound will vary across the globe. China already seems to be recovering, but in the U.S., the end of fiscal stimulus measures and the continued need to repair banks’ balance sheets means recovery there “could be uncharacteristically weak and insufficient” to offset unemployment of around 10%, the OECD said.

Recovery may also be slow in the euro-zone, the OECD said, as rising unemployment weighs on consumer spending.

For related information, go to www.isa.org/productivity.