U.S. recession will bottom out this year
Revised OECD outlook shows growth projected for 2010
Tom Stundza -- Purchasing, 6/24/2009 12:33:45 PM
The Organization for Economic Cooperation and Development this week raised its forecast for the U.S. economy, downgrading the decline expected for 2009 and increasing the growth forecast for 2010.
OCED said U.S. economic output will contract 2.8% in 2009 and grow 0.9% in 2010. The decline will be much smaller than the 4% dip the agency projected in March. And the OECD says U.S. economic growth in 2010, while a feeble 0.9%, compares with its previous prediction of a no-growth economy for next year.
Still, the OECD view is slightly more bearish that the 2.5% contraction outlook issued by the International Monetary Fund (IMF) last week for the world's largest economy. A Reuters News report of the OECD forecast notes that it says consumer spending is unlikely to rebound because labor markets remain strained, housing and stock wealth has been drained and credit conditions still are tight.
"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 OECD's report says. "The recovery will not be strong enough to stop unemployment rising to around 10% over the next two years."
On a positive note, the OECD said a lengthy deterioration in U.S. housing markets "may be approaching an end." In particular, it said the supply of unsold homes was declining relative to demand, a precondition for recovery. But the OECD notes a major downside risk remains that financial markets are fragile, with mortgage credit in tight supply and banks still under considerable stress. "Restoration of trust in financial intermediaries and markets is vital for a sustained and strong economic recovery to occur," the OECD report says.
In Canada, the OECD says the economy is likely to remain in recession through the third quarter and then begin a mild recovery. It forecast gross domestic product (GDP) in Canada will shrink 2.6% in 2009 and then grow 0.7% in 2010. The OECD also forecasts that Brazil, the economic engine for most of Latin America, will see GDP shrink just 0.8% in 2009 and then grow 4% in 2010.
The OECD also forecast China's economic growth at 7.7% this year and 9.3% in 2010, noting that the government's stimulus measures may spark the biggest boom in urban investment since the early 1990s. Bloomberg News says the World Bank, Barclays Capital and Standard Chartered Bank all have high estimates for China's growth after the world's third-biggest economy showed positive signs and record government lending has fueled a surge in investment.
This year's economic growth has been driven by
infrastructure projects funded by the government. "The fiscal stimulus package
introduced in November 2008 is feeding through quickly and forcefully," the
OECD says but adds that the robust outlook for economic growth next year is
somewhat tenuous. GDP expansion of 9.3% depends on how private consumption and
business investment perform as fiscal and monetary stimulus eases, the OECD report
notes.
See also, Positive Indicators.
China's GDP will be Low
04/09/2009OECD sees world growth at 3.4% in 2010
11/18/2009OECD: No Growth for Q2
04/10/2008
Now Playing: 