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Wednesday, November 26, 2008
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OECD makes gloomy forecasts for rich world

OECD chief economist Klaus Schmidt-Hebbel gestures during a press conference in Paris yesterday.

The rich world is plunging into the worst economic downturn in decades, the OECD forecast on Tuesday, as governments scrambled to prepare their nations for soaring unemployment and recession.

Eight million people will be out of work next year, the Organisation for Economic Co-operation and Development warned in a report quantifying the impact of the global financial crisis on 30 countries over the next two years.

House prices will continue to fall in many countries and there is a risk the financial crisis has further to run, with fragile banks exposed to new bad debts.

Many leading industrialised nations face their worst downturn for 25 years, it said in its twice-yearly Economic Outlook report, forecasting that the United States, European and Japanese economies would shrink next year.

"Many OECD economies are in or are on the verge of a protracted recession of a magnitude not experienced since the early 1980s," said the OECD's chief economist, Klaus Schmidt-Hebbel, in the report.

Stock markets have been calmed by the rescue of US banking giant Citigroup and steps by governments to spur economic growth, which were followed by tough talk from US president-elect Barack Obama who vowed major stimulus measures.

But the OECD report sketched out in stark figures the range of the economic fallout from what started as a US banking crisis, then spread to the shopfloors Europe while clipping the wings of emerging economies.

"Jobless numbers could rise to 42 million by 2010 from 34 million currently," the OECD said, forecasting the jobless rate to rise from 5.5 percent in early 2008 to 7.25 percent in 2010.

"Historical experience suggests that youth, immigrants, low-skilled and older workers are more likely to bear the brunt of rising unemployment."

The OECD is a Paris-based government-funded economics institute, whose member countries account for 60 percent of the world's economy.

Tuesday's figures covered the 30-country OECD area which includes North America, most of Europe, and leading emerging and newly industrialised economies including Brazil, China, India and Russia.

Several countries have rolled out stimulus packages for their economies in recent weeks. Britain became the latest on Monday with a 20-billion-pound (30 billion dollar) package of tax cuts.

The OECD backed the idea of stimulus plans by governments to attenuate the effects of the financial crisis, but also highlighted the impact of debt and stressed that tax and spending plans had to be reversed when growth returned.

The long-term fiscal outlook in the United States appears "very unfavourable" and the country is on course to be "among the most heavily indebted of OECD countries" in the next decade, it said.

Obama is said by US news media to be planning a stimulus plan worth up to 700 billion dollars when he takes office in January. He has announced a plan to create 2.5 million jobs through a spending spree on national infrastructure.

"The economic crisis we face is no longer just an American crisis, it is a global crisis -- and we will need to reach out to countries around the world to craft a global response," Obama told reporters on Monday.

He confirmed the New York Federal Reserve president and former Treasury official Timothy Geithner as his nominee for Treasury secretary, and the former Treasury boss Larry Summers as his top economic adviser in the White House.

In Britain, Chancellor of the Exchequer Alistair Darling, who forecast a sharp economic contraction in 2009, launched his tax and spending plan on Monday, sparking a 9.84 percent leap in the London stock market.

The US government's move to guarantee hundreds of billions of dollars of Citigroup's debt also sent stock prices rocketing. Europe's main markets each soared by around 10 percent on Monday, and saw further gains early on Tuesday.

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