OECD says Australia will weather the storm

4:07 AM Wed 26 Nov 2008 GMT

'Australia has been assessed as having a greater chance of avoiding recession.' .

The financial crisis will likely push the world's developed countries into their worst recession since the early 1980s, according to the Organisation for Economic Cooperation and Development (OECD), but Australia is well equipped to avoid the worst of it.

In its half-yearly economic outlook released on Tuesday, the Paris-based organisation said economic output would likely shrink by 0.4% in 2009 for the 30 market democracies that make up its membership, against the 1.4% growth prediction for 2008.

For Australia an extended period of low economic growth was probable, but it continues: "despite the depressed international environment, the impact of the financial crisis and the fall in the terms of trade should be relatively contained".

It is forecasting Australian economic growth of 1.7% in 2009 before rising to 2.7% in 2010. The unemployment rate is expected to rise from a current level of 4.3% to 5.3% in 2009 and 6.0% in 2010.

The OECD said the US was likely to contract by 0.9% in 2009 following a 1.4% expansion this year.

Japanese output is only expected to contract by 0.1% in 2009 following 0.5% growth this year, while the 15-nation Euro-zone will likely shrink by 0.6% next year after 1.0% growth this.

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's Schmidt-Hebbel said 'prompt and massive' policy action to restore confidence and provide liquidity in the banking sector appears to have 'successfully limited the period of panic' but that financial institutions still need to repair their balance sheets.

'This process of adjustment will take some time and impair the flow of credit, and is the key factor weighing on activity going forward,' he said.
The OECD highlighted a number of countries where the downturn will be severe, partly because of falling house prices.

These include Britain, Hungary, Iceland, Ireland, Luxembourg, Spain and Turkey.

'These economies are most directly affected by the financial crisis, which in some cases has exposed other vulnerabilities, or by severe housing downturns,' said Schmidt-Hebbel.

Elsewhere, the OECD said economic growth in China will remain below the double-figure rates experienced over the last few years through to the end of the decade. For 2009, the OECD projected Chinese growth to moderate to 8.0%.

by Jeni Bone

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OECD says Australia will weather the storm

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