First World Said to Face Protracted Slowdown - OECD - US to turn around in 2010

PARIS — Developed economies face a protracted recession and a sharp increase in unemployment, the O.E.C.D. warned Tuesday, and it called for aggressive economic stimulus measures.

Many advanced economies are in or nearing downturns of a magnitude not experienced since the early 1980s, the Organization for Economic Cooperation and Development said in its twice-yearly economic outlook. The organization includes European countries, the United States, Canada, Japan and Australia.

Klaus Schmidt-Hebbel, the group’s chief economist, warned in the report that the uncertainties associated with the forecasts were “exceptionally large, especially those related to the assumptions regarding the speed at which the financial market crisis — the prime driver of the downturn — is overcome.”

The O.E.C.D. projected that the economies of its 30 members would decline in 2009 by 0.4 percent over all, after growth of 1.4 percent this year. It forecast that growth would return in 2010, with advanced economies growing a combined 1.5 percent.

The number of unemployed people in those countries could rise by 8 million over the next two years. Inflation would ease, it said, but some countries would face a small risk of deflation.

The group also called on governments to take aggressive fiscal policy measures, as “current conditions of extreme financial stress have weakened the monetary transmission mechanism.” But it warned that once a recovery started to take hold, governments must “begin promptly to unwind the macroeconomic stimulus in place to prevent inflationary pressures from gaining a foothold.”

In the United States, President-elect Barack Obama has promised to rapidly enact a significant stimulus package. Governments in Britain, the European Continent, Japan and China have all announced efforts to stimulate growth.

The O.E.C.D. said the American economy would decline 0.9 percent next year, after posting growth of 1.8 percent this year. The economy will grow 1.6 percent in 2010, the organization said.

The euro zone economy will shrink 0.6 percent next year, after a 3.4 percent increase in 2008, the organization said, with 1.3 percent growth in 2010. The organization warned that the housing correction in European markets appeared to have farther to go.

Growth in Japan will remain just positive, rising 0.3 percent next year, after 1.4 percent growth this year, the forecast said, but the economy will shrink 0.1 percent in 2010. It warned that “with persistent economic slack and anemic wage growth,” deflation could return to Japan by mid-2009.

The organization said the downturn would also be severe in Britain, Hungary, Iceland, Ireland, Luxembourg, Spain and Turkey.