Weak recovery in sight but damage from crisis likely to be long-lasting, says OECD

The slowdown in OECD economies is reaching the bottom following the deepest decline for more than 60 years, says the OECD’s latest Economic Outlook. But recovery is likely to be weak and fragile, and the economic and social damage caused by the crisis will be long-lasting.

The latest edition of the Economic Outlook is the first in two years to see previous projections for economic growth revised upwards – most clearly for the large emerging economies and the United States – rather than downwards. But the prospects for the euro area this year have worsened and Japan’s have changed little since the OECD’s previous projections were published in March.

“Thanks to firm action to stimulate our economies it appears that we have escaped the worst during this crisis,” said Angel Gurría, Secretary-General of the OECD. “But the next few months will be equally testing. There needs to be a clear and credible plan and timeline for phasing out the emergency measures as the recovery takes hold. It is critical to consider these exit strategies now in order to prevent new risks in the years ahead.”

US economic activity this year is expected to fall 2.8%, against the 4.0% decline projected in March. Growth in 2010 is now forecast at 0.9% compared with 0% previously. The trough in US activity is expected during the second half of this year but the Outlook warns that as the impact of the stimulus measures fades, increased savings by corporations and consumers to reduce their indebtedness will continue to hold back growth. The recovery will not be strong enough to stop unemployment rising to around 10% over the next two years.


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