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OECD says recession 'near bottom' OECD says recession 'near bottom'
(about 1 hour later)
The Organisation for Economic Cooperation and Development says the world economy is near the bottom of the worst recession in post-war history.The Organisation for Economic Cooperation and Development says the world economy is near the bottom of the worst recession in post-war history.
The body that represents the 30 most industrialised nations said that those economies will shrink 4.1% this year. The body that represents the 30 most industrialised nations said that those economies would shrink 4.1% this year.
But it adds that recovery is likely to be "weak and fragile" for some time.But it adds that recovery is likely to be "weak and fragile" for some time.
And it says that the UK is in "a sharp recession", with output set to decline by 4.3% in 2009 and no growth in 2010 - well below UK government estimates.And it says that the UK is in "a sharp recession", with output set to decline by 4.3% in 2009 and no growth in 2010 - well below UK government estimates.
The OECD says the pace of the global downturn is now moderating after the sharp drop in the six months to March, but still expects world output to shrink 2.2% this year. It looks like the worst scenario has been avoided OECD
For the UK, that is a downward revision from the 3.7% decline the OECD was projecting in March. It also says that the UK budget deficit will reach 14% in 2010.
The OECD says the pace of the global downturn is now moderating after the sharp drop in the six months to March, but it still expects world output to shrink by 2.2% this year.
However, this is the first time for two years it has revised upwards its overall economic forecasts, especially for 2010, with the economies of Japan and the US now expected to decline less sharply than projected in its previous report.
Signs of hopeSigns of hope
It says the advanced economies will return to weak growth of 0.7% in 2010, compared to its previous forecast of a contraction of 0.1%. It says the advanced economies will return to weak growth of 0.7% in 2010, compared with its previous forecast of a contraction of 0.1%.
WORLD GROWTH FORECAST UK 2009 -4.3%; 2010 0.0%USA 2009 -2.8%; 2010 0.9%Eurozone 2009 -4.8%; 2010 0.0%Japan 2009 -6.8%; 2010 0.7%OECD 2009 -4.1%; 2010 0.7%World 2009 -2.2%; 2010 2.3% Source: OECD Economic Outlook
"It looks like the worst scenario has been avoided," the OECD said."It looks like the worst scenario has been avoided," the OECD said.
"Even if the subsequent recovery may be slow, such an outcome is a major achievement of economic policy.""Even if the subsequent recovery may be slow, such an outcome is a major achievement of economic policy."
It says this is the first time it has revised upwards some of its economic forecasts in two years, with the economies of Japan and the US now expected to decline less sharply than projected in March.
The OECD adds that there are already signs of recovery in the large non-OECD countries such as China, and that in the US activity could bottom out in the second half of 2009.The OECD adds that there are already signs of recovery in the large non-OECD countries such as China, and that in the US activity could bottom out in the second half of 2009.
However, it is more pessimistic about the prospects for the UK and the eurozone.However, it is more pessimistic about the prospects for the UK and the eurozone.
It says that "signs of impending recovery in the euro area are not yet clearly visible" because of housing bubbles, damage to the financial sector, and export setbacks.It says that "signs of impending recovery in the euro area are not yet clearly visible" because of housing bubbles, damage to the financial sector, and export setbacks.
And it warns that in the UK, rising public sector deficits will need to be reined in as recovery takes hold, and urges the government to develop a "concrete and comprehensive plan" to ensure debt is on a declining path And it warns that in the UK, rising public sector deficits will need to be reined in as recovery takes hold, and urges the government to develop a "concrete and comprehensive plan" to ensure debt is on a declining path.
It also warns that unemployment could still rise to above 10% in the UK, the eurozone, and the US.
The collapse in world trade, which is projected to fall by 16% this year, has hit major exporting countries such as Germany and Japan particularly hard.
Policy measuresPolicy measures
Output in the eurozone may recover more slowly than elsewhereOutput in the eurozone may recover more slowly than elsewhere
The OECD says that not only have its growth projections been revised, but the risks that things might be worse than expected are lower.The OECD says that not only have its growth projections been revised, but the risks that things might be worse than expected are lower.
"A really disastrous outcome has become more of a remote risk," said OECD chief economist Jorgen Elmeskov.
It says financial conditions might improve more quickly that it has assumed, although there is still a risk of an adverse reaction in bond markets to the high levels of government debt.It says financial conditions might improve more quickly that it has assumed, although there is still a risk of an adverse reaction in bond markets to the high levels of government debt.
But it says that "it would be tempting but wrong" to relax the extraordinary policy effort of the last nine months.But it says that "it would be tempting but wrong" to relax the extraordinary policy effort of the last nine months.
It says there is still more that policy can do to ensure a faster and more robust recovery, especially by removing the uncertainty over impaired bank assets.It says there is still more that policy can do to ensure a faster and more robust recovery, especially by removing the uncertainty over impaired bank assets.
The OECD adds that there are major challenges in eventually rolling back the range of government interventions to stabilise the financial system - in particular, it calls for coordination across countries to avoid fear of competitive disadvantage blocking progress.The OECD adds that there are major challenges in eventually rolling back the range of government interventions to stabilise the financial system - in particular, it calls for coordination across countries to avoid fear of competitive disadvantage blocking progress.
And it says that tough measures will be needed to eventually reduce government budget deficits that have been stretched by the crisis. It urges governments to begin planning for such adjustments now even if they cannot be fully implemented until the economy improves.And it says that tough measures will be needed to eventually reduce government budget deficits that have been stretched by the crisis. It urges governments to begin planning for such adjustments now even if they cannot be fully implemented until the economy improves.