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Economies need tax cuts to limit financial crisis impact: OECD
World economies need more interest-rate reductions and tax cuts to limit the impact of the financial crisis, says the Organisation for Economic Cooperation and Development.
- AP
- Published: 15:20 November 25, 2008
- Governments across the world have already announced measures to protect their largest banks from collapse.
- Image Credit: Gulf News
London: The financial crisis will likely push the world's developed countries into their worst recession since the early 1980s, the Organisation for Economic Cooperation and Development (OECD) said on Tuesday.
In its half-yearly economic outlook, the Paris-based Organisation said economic output will likely shrink by 0.4 per cent in 2009 for the 30 market democracies that make up its membership, against the 1.4 per cent growth prediction for 2008. As a result, the OECD said it supported fiscal rescue measures, including tax cuts, provided they were targeted and temporary.
The OECD said the number of unemployed across its members could rise by 8 million over the next two years and that there is a risk, "albeit small," that some countries will experience deflation.
The OECD said the US was likely to contract by 0.9 per cent in 2009 following a 1.4 per cent expansion this year. Japanese output is only expected to contract by 0.1 per cent in 2009 following 0.5 per cent growth this year, while the 15-nation euro-zone will likely shrink by 0.6 per cent next year after 1.0 per cent growth this year.
The OECD's latest 2009 projections for the world's leading three economic areas are more or less the same as the preliminary forecasts made earlier this month ahead of the G-20 meeting of world leaders in Washington, with only 2009 growth in the euro-zone revised down from the previous estimate of 0.5 per cent.
The OECD said economic growth of its membership fell by an annualised quarter-on-quarter 0.2 per cent in the third quarter this year and will keep contracting until the middle of 2009. The biggest loss of output in the OECD is expected to occur during the fourth quarter of 2008, with a 1.4 per cent contraction predicted.
The figures indicate that the developed world has now entered a slump estimated to last at least four quarters; two consecutive quarters is a common definition of recession.
"Many OECD economies are in, or are on the verge of, a protracted recession of a magnitude not experienced since the early 1980s," said Klaus Schmidt-Hebbel, the OECD's chief economist. The OECD said the US economy would contract by an annualised rate of 0.3 per cent in the third quarter, followed by a massive 2.8 per cent decline in the last quarter. Recovery is only anticipated in the third quarter of 2009 when output is set to spike 0.6 per cent as the effects of the credit squeeze abate, the housing downturn bottoms out and low interest rates bear fruit.
In the euro-zone, output is seen to have fallen by 0.9 per cent in the third quarter, followed by a 1.0 per cent decline in the fourth. As in the US, output is not expected to rebound until the third quarter of 2009, and only then by the modest amount of 0.1 per cent. Official European Union figures earlier this month confirmed that the euro-zone is in recession.
In Japan, the recession, which started in the second quarter of 2008, is only expected to last through to the first quarter of 2009, when output is expected to rebound by an annual rate of 0.8 per cent. However, output is set to stagnate over the second half of 2009 as the global economic downturn and the recent rise in the yen hits demand for Japanese goods.
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