1 Apr 2009

OECD forecasts bleak global outlook

6:36 am on 1 April 2009

The world economy will shrink at a far faster pace than originally expected this year, sending unemployment soaring and highlighting the need for extra steps to halt the crisis, the OECD said on Tuesday.

The 30-nation Organisation for Economic Co-Operation and Development said member economies would contract minus 4.3% this year.

That was sharply down from the last forecast of minus 0.4%, made in November, but in line with a broad figure given by General-Secretary Angel Gurria on Monday.

Stimulus measures taken so far should stop the world experiencing a repeat of the 1930s Great Depression and growth should return in 2010, it said. But some governments and central banks needed to use the room they have for more aggressive policy.

"The world economy is in the midst of its deepest and most synchronised recession in our lifetime caused by a global financial crisis and deepened by a collapse in world trade," the OECD said in its interim economic outlook.

"We anticipate that the ongoing contraction in economic activity will worsen this year before a policy-induced recovery gradually builds momentum through 2010."

The report said that "risks remain firmly tilted to the downside", with the largest risk that the weakening economy further undermines the health of financial institutions, forcing them to curtail lending beyond what is anticipated.

The recession will lead to a sharp rise in unemployment, with a peak in 2010 or early 2011 and many countries reaching double-digit levels for the first time since the early 1990s.

G20 leaders will meet in London on Thursday to discuss the crisis.

"An essential step to arrest the 'economic haemorrhaging' that is ongoing is to devise and implement without delay a coherent strategy that squarely tackles the mess in financial markets," the report said.

This included decisive measures for dealing with impaired assets and restoring confidence in markets.

The United States has pushed for Europe to take more stimulus action. The OECD said some countries, including Germany, Canada, and Australia, appeared to have more fiscal room and urged those that could afford it to make a special effort in 2010.