OECD Forecasts Recessions in the U.S., Europe, Japan

By Jurjen van de Pol

Nov. 13 (Bloomberg) -- The Organization for Economic Cooperation and Development cut its forecast for global growth in 2009 for the second time this year and urged governments to take more stimulus measures to fight a recession.

The economy of the OECD's 30 members will contract 0.3 percent in 2009 after expanding 1.4 percent this year, the Paris- based group said today in its latest economic projections. The OECD in June forecast that economic growth among member nations would slow to 1.7 percent next year from 1.8 percent in 2008.

``The OECD as a whole is currently in recession'' and will start recovering in the second half of 2009, Jorgen Elmeskov, the OECD's director of policy studies, said at a press conference today in Paris. ``Underlying the projections is an assumption that the extreme financial stress since mid-September is short-lived, but will be followed by an extended period of financial headwinds through late 2009,'' the OECD said.

The OECD follows the International Monetary Fund in forecasting economic contractions in the U.S., Japan and the euro area next year as the credit crisis ripples through the global economy, forcing central banks to cut interest rates. The Germany economy, Europe's largest, contracted in the third quarter, confirming it has entered the worst recession in at least 12 years as the financial crisis curbs exports.

`Spend the Money'

``The important thing in the current situation is to do something that is effective in stimulating demand,'' Elmeskov said in an interview. ``One potential instrument is tax reduction targeted to households that are credit-constrained, so that one can be reasonably assured that they will go out and spend the money.''

The U.S. is leading the slowdown as the largest economy in the world is forecast to shrink 0.9 percent next year after 1.4 percent growth this year, the OECD said. Japan will see a contraction of 0.1 percent next year after a projected 0.5 percent expansion in 2008, the OECD said.

``Obviously, Japan has a huge debt and the U.S. has relatively big deficits,'' said Elmeskov. As both countries have little room left to cut interest rates, ``it's clear that in both these cases the need for fiscal stimulus is obviously there.''

The 15-nation euro-zone economy is set to contract 0.5 percent next year after an expansion of 1.1 percent in 2008, only to recover in 2010, after consumers cut down on spending and companies postponed investments.

Public Spending

``In the euro area, taxes fall by a lot when there's a downturn and public spending increases due to higher unemployment benefit payments,'' said Elmeskov, adding that this helps to absorb the shock. ``The ECB also has more monetary ammunition left than is the case in the U.S. and Japan.''

European stocks fell for a third day as concern the financial turmoil is far from over outweighed speculation central banks will cut rates more to prop up economic growth. The Dow Jones Stoxx 600 Index lost 1.2 percent at 10:26 a.m. in London, pushing this year's retreat to 44 percent.

The OECD forecast inflation in its member states will accelerate to 3.3 percent this year, compared with an earlier projection of 3 percent. Price rises will ease in 2009 to 1.7 percent from an earlier projection of 2.1 percent as oil and commodity prices come down from record levels.

``We can see already in the incoming inflation indicators that inflation is coming down,'' Elmeskov said. ``We would expect that process to have further to go.''

To contact the reporter on this story: Jurjen van de Pol in Amsterdam jvandepol@bloomberg.net