MercoPress. South Atlantic News Agency

OECD forecasts two digits unemployment in several countries by 2010

Economic activity is expected to plummet by an average 4.3% in the OECD area in 2009 while by the end of 2010 unemployment rates in many countries will reach double figures for the first time since the early 1990s, according to the OECD’s Economic Outlook Interim Report

Amid the deepest and most widespread recession for more than 50 years, international trade is forecast to fall by more than 13% in 2009 and world economic activity to shrink by 2.7%. The big emerging economies will also suffer abrupt slowdowns in growth.

The global recession will worsen this year before a policy-induced recovery gradually builds momentum through 2010, the report says.

In the United States, activity will fall sharply in the near term, but the country could begin to pull out of the recession in early 2010, assuming the effectiveness of strong stimulus packages and more stable financial and housing markets. Gross domestic product (GDP) is forecast to fall 4% in 2009 then remain unchanged next year.

In Japan, economic output is projected to fall by 6.6% this year as shrinking export markets more than offset policies to encourage domestic spending. Deflation will return as spare capacity puts downward pressure on prices. The fall in output in 2010 is expected to be 0.5% as internal demand picks up in the second half of the year.

Weak export markets, falling investment and a continuing credit crunch will hit Euro area activity hard over the coming six months. The recovery will only begin to build momentum by the middle of 2010. GDP is projected to drop 4.1% in 2009 and by 0.3% next year.

In the large emerging economies activity is slowing as access to international credit dries up, commodity prices fall and export demand weakens. Brazil’s GDP is expected to decline by 0.3% in 2009 while Russia’s is projected to fall 5.6%. Growth in India will ease back to 4.3% this year and in China to 6.3%.

The Interim Outlook adds that the risks of an even gloomier scenario outweigh the possibility of a quicker recovery. The most important risk is that the weakening real economy will further undermine the health of financial institutions, which in turn deepens the slump in economic activity.

The report finds that the discretionary stimulus measures taken by governments in response to the crisis will on average boost GDP by around 0.5% in 2009 and in 2010. The United States and Australia are exceptions in that their discretionary measures are estimated to increase GDP by more than 1% for both years. These estimates are taken into account in the Interim Economic Outlook’s forecasts.

How effective the measures will be also depends on timing. The Interim Economic Outlook recommends that those countries that have scope for further action should consider boosting the stimulus in 2010 then, as the recovery strengthens, they should scale back or even reverse the measures in order to strengthen public finances over the long-term.