OECD - 'Britain Slowest To Emerge From The Recession'

Britain's economy will lag other developed nations in emerging from recession, according to the Organisation for Economic Co-operation and Development (OECD).

The organisation, which exists to promote economic growth and development, said that several of the economies in the G7 group of developed nations would perform better during the whole of 2009 than it predicted in June — with Britain a glaring exception.

The news will come as an embarrassment to Gordon Brown and Alistair Darling ahead of this weekend's meeting of the G20 finance ministers in London and a summit in Pittsburgh beginning on September 24.

The OECD said that it now expected the UK economy to contract by 4.7 per cent for the year as a whole. That compares with the 4.3 per cent contraction it forecast in its June Economic Outlook forecast.

Britain was the only member of the G7 group of developed nations for which the Paris-based organisation has reduced its growth forecast since June. The OECD now expects the eurozone to suffer a 3.9 per cent contraction during the year, compared with the 4.8 per cent previously forecast, while the predicted contraction for Japan's economy has come down from 6.8 per cent to 5.6 per cent.

Europe

Within the eurozone, the outlook for Germany and France has improved significantly, with the German economy predicted to contract by 4.8 per cent this year — down from the 6.1 per cent forecast by the OECD in June. The organisation also expects the French economy to contract by only 2.1 per cent this year — down from the 3 per cent reduction it expected three months ago.

Mr Darling is arguing that leading nations must keep pumping money into the global economy to support growth. However, other countries, led by Germany, are calling for a $1.1 trillion global rescue package agreed by G20 leaders to be scaled back amid fears it risks burdening economies with too much debt and could encourage inflation.

The OECD also predicted that Canada's economy will contract by 2.5 per cent during the year — down from the 2.6 per cent previously forecast. The outlook for the US economy was unchanged — with the OECD continuing to expect a contraction of 2.8 per cent during 2009.

Delivering its latest Interim Economic Assessment, the OECD said that it expected the United States and the eurozone to return to economic growth during the third quarter of 2009, but said that Britain would not return to economic growth until next year.

UK

It predicted that the UK economy would contract by 1 per cent during the third quarter of 2009 — lagging the US, Japan, Germany and France — and forecast it will experience zero growth during the fourth quarter of the year.

The OECD did warn, though, that Japan, the world's second-biggest economy, will return to negative growth during the final three months of 2009.

Overall, the OECD said that the global economy was set to pull out of recession faster than expected, with interest rates set to remain at historically low levels for most of 2010.

Jorgen Elmeskov, the Acting Head of the OECD's Economics Department, said that, in view of the mostly positive economic news during recent months, the organisation's short-term forecasting models were now pointing to an earlier recovery than envisaged a few months ago.

Mr Elmeskov said that increased economic slack and the collapse in commodity prices earlier this year had "damped somewhat" underlying inflation and would continue to act as a brake on inflation.

OECD Warning

But he warned: "Substantial slack, combined with the prospect for a weak recovery, implies that strong policy stimulus will continue to be needed in the near term. Regarding monetary policy, taking the first steps towards normalisation of policy interest rates from their current exceptionally low levels should in most cases and on current prospects wait until well into 2010 and in some cases, even beyond."

(Source: The Times, BBC, CNN, Flickr)