Major Economies To Shrink

Source : The Straits Times, Nov 13, 2008

PARIS - LEADING industrialised nations appear to be in a 'protracted' downturn, with the US, Japanese and eurozone economies likely to shrink next year, the OECD said on Thursday.

In the eurozone, the economy will not begin to grow again until the third quarter of 2009, when it should expand 0.1 per cent. -- PHOTO: AFP

The Organisation for Economic Cooperation and Development predicted a return to modest growth in 2010 but warned that the United States, the world's largest economy, would suffer a whopping 2.8 per cent contraction in fourth quarter 2008.

It called for further government stimulus measures and steps to shore up financial markets but also warned against any move that would distort competition or threaten the operation of open markets.

The OECD, the Paris-based grouping of the world's 30 most developed countries, issued a one-page statement ahead of an emergency summit in Washington on Saturday of 20 developed and developing nations aimed at dousing a global financial and economic firestorm.

'The OECD area now appears to have entered recession,' the statement said, with OECD projections pointing to 'a protracted downturn.'

It sees the OECD countries contracting 0.3 per cent in 2009, after growth of 1.4 per cent this year, before rebounding to 1.5 per cent in 2010.

The US economy will contract 0.9 per cent in 2009, Japan 0.1 per cent and the eurozone 0.5 per cent after posting respective gains this year of 1.4 per cent, 0.5 per cent and 1.1 per cent.

In 2010, according to the OECD, the United States should grow 1.6 per cent, Japan 0.6 per cent and the eurozone 1.2 per cent.

The OECD said the US econony shrank 0.3 per cent in the third quarter this year and would contract 2.8 per cent in the fourth, thereby meeting the traditional measure of recession - two consecutive quarters of negative growth.

The United States will not enjoy positive growth - 0.6 per cent - until the third quarter of 2009, according to the OECD.

The Japanese economy will also see negative growth in the final two quarters of 2008 before returning to positive territory - 0.8 per cent - in first quarter 2009.

But in the third quarter of 2009, Japan will slip back and its economy will contract 0.3 per cent.

In the eurozone, the economy will not begin to grow again until the third quarter of 2009, when it should expand 0.1 per cent.

The OECD said its analysis was based on an assumption that the 'extreme' financial market distress that erupted in mid-Sept would be 'short-lived' but 'followed by an extended period of financial headwinds through late 2009, with a gradual normalisation thereafter.'

It said it expected a continued moderation in inflation while 'against the backdrop of a deep economic downturn, additional macroeconomic stimulation is needed,' suggesting that tax cuts for credit-strapped households could prove effective.

The OECD said that in the US and Japan the scope for additional interest rate cuts to spur momentum had narrowed. The US Federal Reserve has already slashed its benchmark rate to a record low 1.0 per cent while the Bank of Japan last month reduced its key rate to 0.30 per cent.

Many OECD members in recent weeks have adopted vigorous measures to revive their struggling banks, notably through direct injections of capital and credit guarantees aimed at inducing them to start lending money again.

'The need for further measures to stabilise financial markets cannot be excluded,' the OECD said.

It also called for 'international cooperation ... to avoid measures that distort competition' and said that regulatory and supervisory frameworks would have to be 're-examined.'

'When addressing these issues, it will be important to focus on reforms to the global financial architecture and at the same time resist pressures for a wider rollback of open markets which would prove costly,' it added. -- AFP


Eurozone to contract 0.5% in 2009: OECD

PARIS - THE eurozone economy will be in recession at the end of 2008 and is likely to contract 0.5 per cent in 2009, the OECD said on Thursday.

The Organisation for Economic Cooperation and Development, the Paris-based grouping of the world's 30 most developed-countries, said the eurozone will show negative growth in the final two quarters of 2008.

For all of 2008, however, growth is expected to come to 1.1 per cent.

The eurozone economy will not begin to grow again until the third quarter of 2009, when it should expand 0.1 per cent. But for the full year, the area's economy will show a contraction of 0.5 per cent.

In 2010, economic growth in the euro area should be 1.2 per cent, according to the OECD. --AFP