The deepest global recession in over 60 years is close to bottoming out, but recovery will be weak unless governments do more to remove uncertainty over banks’ balance sheets, the Organization for Economic Cooperation and Development (OECD) said Wednesday.
In its half-yearly economic outlook, the Paris-based organization said it expects its member countries’ economies to shrink by 4.1 percent 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 percent decline this year and is the group’s first upward revision to its forecasts in two years, Secretary General Angel Gurria said at a news conference in Paris.
“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’s slightly less pessimistic outlook contrasted with the World Bank’s decision Monday to slash its own economic forecast. The Washington-based multilateral lender said global output will contract 2.9 percent this year, worse than its view in March of only a 1.7 percent drop. The bank cited much deeper and broader economic damage in developing countries.
The OECD forecast applies only to developed countries, where key growth areas like manufacturing and household spending have been hit particularly hard by the economic crisis.
Both organizations agree, however, that the recovery “will be weak, and that’s the main story,” said Julian Jessop, chief international economist at Capital Economics in London.
The OECD now expects the US economy to shrink by 2.8 percent this year after 1.1 percent growth in 2008. Japanese output is likely to contract by 6.8 percent this year and the 16 nation euro-zone will likely shrink by 4.8 percent.
The OECD forecast a return to growth in all three regions next year, with overall growth across its membership expected to average 0.7 percent in 2010, according to the report.
That also represents an improvement from the OECD’s last forecast of a 0.1 percent contraction next year.
World economic growth, which the OECD defines as its members plus Brazil, Russia, India and China, will rebound to 2.3 percent next year from a decline of 2.2 percent 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 percent, the OECD said.
Recovery may also be slow in the euro-zone, the OECD said, as rising unemployment weighs on consumer spending.
The OECD urged countries to both start devising their “post-crisis policy strategies” to roll back their stimulus measures, while also continuing with measures “to ensure a faster and more robust recovery.”
Countries that have not already acted to remove uncertainty over their banks’ balance sheets need to do so, while stress testing of banks should be employed to restore confidence, the OECD said.