By Sandrine Rastello and Svenja O’Donnell
March 31 (Bloomberg) -- The World Bank and OECD cut their economic outlooks for emerging and rich nations and warned surging unemployment may deal another blow to the global economy.
The Organization for Economic Cooperation and Development said in Paris the economy of its 30 members will contract 4.3 percent this year, four percentage points below its previous prediction. The World Bank lowered its growth forecast for developing countries this year by more than half to 2.1 percent.
“2009 will be a dangerous year,” World Bank President Robert Zoellick said in a speech in London as he expressed concern of a looming “unemployment crisis.”
The deteriorating world economy adds urgency to the London summit in two days of Group of 20 leaders which is being held to find remedies to the worst economic and financial turmoil in six decades. Job cuts from Volkswagen AG to Agilent Technologies Inc. are putting pressure on governments to do more even as they run out of room to ease fiscal and monetary policies.
“It is important and necessary for the summit to take credible decisions which will help to halt and reverse the current slowdown and to instill a sense of confidence in the global economy,” Indian Prime Minister Manmohan Singh said today before leaving for London.
The OECD urged the policy makers to “devise and implement without delay a coherent strategy that squarely tackles the mess in financial markets.” Governments with the scope to do so should introduce more fiscal stimulus to support demand, it said, singling out Canada, Germany, South Korea and Australia.
Japan Contraction
The OECD projected Japan’s economy will shrink 6.6 percent, outpacing declines of 4.1 percent in the euro area and 4 percent in the U.S. It predicted unemployment across its 30 members would rise to 10.1 percent by the end of 2010 from 7.5 percent in the current quarter, forecasting that would leave inflation in many economies close to zero.
Central banks should keep interest rates close to zero and the OECD also urged policy makers to find ways to rid banks of toxic assets. Deflation “appears to be a significant risk” for many economies next year, the OECD said.
The organization warned its outlook was subject to “risks that remain firmly tilted to the downside,” citing the potential for another bout of problems at banks and governments failing to do enough to calm markets. Deutsche Bank AG Chief Risk Officer Hugo Banziger said yesterday the credit crisis is “far from over.”
‘Real Hardships’
The World Bank’s Global Economic Prospects report predicted the world economy will shrink 1.7 percent this year and Zoellick identified central and eastern European economies as the most vulnerable to the international slump.
While joblessness, home repossessions and the collapse in asset values are “real hardships” in the developed world, Zoellick said poorer nations “have much less cushion: no savings, no insurance, no unemployment benefits, and often no food.”
Capital flows to the developing world have shrunk this year to about one-third of the peak of $1.2 trillion reached in 2007. Financing shortfalls, declining commodity prices and a drop in demand may lead to a “social and human crisis,” Zoellick said.
Both institutions warned governments not to resort to protectionism. The World Bank estimated the volume of global trade in goods and services will drop 6 percent and the OECD predicted a 13.2 percent plunge.
While the OECD said its bloc will contract 0.1 percent next year, the World Bank predicted the global economy will grow 2.3 percent.
“Even if global growth turns positive again in 2010, output levels will remain depressed, fiscal pressures will mount and unemployment levels will rise further in virtually every economy well into 2011,” Hans Timmer, a World Bank economist, said in a statement.
To contact the reporters on this story: Sandrine Rastello in Paris at srastello@bloomberg.net; Timothy R. Homan in Washington at thoman1@bloomberg.net.
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