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OECD Predicts Recession For Some

  • December 3rd, 2008
  • Posted by Daniel Challis

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Australia will be one of the few industrialised countries to avoid a recession next year according to the Paris-based Organisation for Economic Cooperation and Development (OECD).

The OECD released an Economic Outlook last Tuesday that predicts 21 of the 30 member economies of the OECD will go through a prolonged recession not seen since the beginning of the 1980s.

AUSTRALIA’S ECONOMY WILL CONTINUE TO GROW

The OECD predicted Australia’s economy would grow by 1.7%; a figure just under Treasurer Wayne Swan’s forecast of two percent growth.

Unemployment however was likely to increase up to 6% by 2010 and inflation might dip below 3% by the same year.

The OECD also predicted that house prices might fall sharply and affect consumer spending, due to the common practice of using house equity to pay for other consumer goods.

Mr Swan said that despite the predictions, Australia was better placed than most countries to weather the difficult global economic conditions.

He said there were underlying strengths that underpinned the Australian economy despite the particular risk of the decline in trade and a weakening Chinese economy.

Some of the other countries to dodge a recession according to the OECD are Norway, Greece and some east European countries.

EUROZONE ECONOMIC DOWNTURN

The OECD has forecast four consecutive quarters of contracting output for the 15-nation Eurozone, as growth is set to shrink 0.6% by next year.

Gross domestic product growth in the UK is down to 0.8% and is likely to stay around this amount up until 2010 despite a minor recovery in the second half of 2009.

Other European countries experiencing a similar economic downturn partly due to falling house prices include Spain, Turkey, Hungary, Iceland and Ireland.

The OECD said economic activity would continue to fall in the Eurozone due to the negative effects of pressure on incomes, house prices, consumption and investment.

Unemployment is also set to grow within the 30 OECD member countries from 34 million to 42 million within the next two years.

Chief OECD economist, Klaus Schmidt-Hebbel said reform of financial market supervision and regulation is clearly necessary to build a more resilient financial system and combat unemployment.

“Our efforts need to focus on identifying the market imperfections that gave rise to the incentives for excess risk taking and high leverage, as well as regulatory failures that together caused this unprecedented global financial crisis,” he said.

Reference:

OECD Economic Outlook no. 84, Paris, 25.11.08.
http://www.oecd.org/dataoecd/41/33/35755962.pdf, (25.11.08).

OECD Economic Outlook for Australia.
http://www.oecd.org/dataoecd/7/0/20209193.pdf, (25.11.08). 

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