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World economy will shrink faster warns OECD

London, March 31, 2009

The Organisation for Economic Co-Operation and Development (OECD) forecast the world economy would shrink far faster than originally expected, sending unemployment soaring and underscoring the need for extra steps to halt the crisis.

Releasing its outlook as Japan announced it was readying its third stimulus package, the 30-nation OECD said member economies would contract 4.3 percent this year. That compares with a forecast of 0.4 percent contraction made in November. 

The warning comes as world leaders travel to London for this week's G20 crisis summit.

"The world economy is in the midst of its deepest and most synchronised recession in our lifetime caused by a global financial crisis and deepened by a collapse in world trade," the Paris-based OECD said.

"We anticipate that the ongoing contraction in economic activity will worsen this year before a policy-induced recovery gradually builds momentum through 2010."    

Both Japan and Germany announced big rises in unemployment, underscoring the human cost of the crisis that ministers from the world's richest nations and the biggest emerging economies must tackle when they meet in London on Thursday.

Japan's Prime Minister, Taro Aso, pledged to submit an extra budget to fund a new stimulus package but was silent on how much the government would spend to fight the recession.

Aso, who has been faring badly in opinion polls, told reporters in Tokyo: "We aim to compile bold measures without being fixated on past experiences."    

The planned package, which would be the third since the economic downturn, will likely aim to create 2 million jobs over three years, but market players were hardly inspired.

"It seems to me basically like lip-service," said Tomomi Yamashita, fund manager at Shinkin Asset Management.

Meanwhile, Germany reported its biggest jump in unemployment in March since the economic crisis began, figures from the Federal Labour Office showed.

"The German labour market is increasingly feeling the pain of the country's worst recession in decades," economist Carsten Brzeski of ING Financial Market said after adjusted numbers for March took German unemployment to 8.1 percent.

But inflation data for the 16 European countries in the euro zone, was down to a record low of 0.6 percent year-on-year in March, bolstering expectations of an ECB rate cut on Thursday.

Markets expect the European Central bank (ECB) to reduce rates by half a percentage point to 1.0 percent and perhaps announce measures to boost liquidity.

While indicators pointed to a worsening global economy, stock markets looked set to achieve their best monthly performance in more than six years in March.

Even the best performance since October 2002 would be relative, however. The MSCI World index remained down more than 12 percent this quarter after losing 22.7 percent in the October-December period last year.   

Regulation of banks and other financial institutions will be one of the main themes of the G20 summit following the mauling inflicted on the banking world.

Stricken Belgian-Dutch group Fortis NV provided evidence of that financial storm with news of a 28 billion euro ($37 billion) loss for 2008.

British Prime Minister Gordon Brown, the host of the G20 summit, said leaders would only succeed in tackling the crisis if all nations committed to act together.

"The world didn't come together in previous recessions and they lasted much longer," Brown told a television programme. "And I think there is a determination on all our parts -- given that we are dealing with the same problems -- to take action."    

In the runup to the summit China and Russia have called for moves towards a new world reserve currency, but World Bank president Robert Zoellick said he believed th


Tags: OECD | Recession | World Economy |

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