Growth will resume this year, says OECD

In New Zealand's case the OECD points to rising net immigration and a pick-up in the housing market as signs conditions are stabilising. Photo / Herald on Sunday

The OECD expects economic growth to resume before the year is out, both in New Zealand and across the developed world as a whole.

The Organisation for Economic Co-operation and Development's six-monthly Economic Outlook released yesterday is the first in two years to take a more positive view of the growth outlook than the previous one.

The recovery, it warns, is likely to be weak and fragile for some time and the consequences, social and economic, of the recession will be long lasting.

"Yet it could have been worse," the report says.

In New Zealand's case the OECD points to rising net immigration and a pick-up in the housing market as signs conditions are stabilising, consistent with growth resuming later this year.

But it says the unemployment rate, currently 5 per cent, may well rise beyond 8 per cent next year.

"Substantial downside risks remain especially if global risk appetite were to falter, raising New Zealand's borrowing costs."

Across the OECD as a whole economic activity may be approaching its low-point, it says.

"Signs have multiplied that US activity could bottom out in the course of the second half of this year."

But as the boost from fiscal stimulus fades, and a weak labour market and declines in housing and financial wealth weigh on consumer spending, the recovery could prove weak. The OECD expects unemployment to stick up around 10 per cent for some time.

While the OECD expects the US to claw back next year most of this year's 1.7 per cent decline in GDP, in Europe it forecasts a deeper contraction (3.6 per cent) and a more feeble recovery (0.9 per cent). It sees signs that Japan's trade-induced contraction is close to the end, largely thanks to fiscal stimulus. But the huge amount of slack in the Japanese economy is likely to entrench deflation and the recovery is likely to be slow.

The OECD says recovery already appears to be under way is some large non-OECD countries, notably China and to a lesser extent in what it calls "dynamic Asia", a group including Taiwan, Hong Kong, Indonesia, Malaysia, the Philippines, Thailand and Singapore.

In India the slowdown bottomed out late last year, the OECD says, while in Brazil there are also signs of recovery. In Russia output after collapsing earlier in the year has bounced back up as confidence revives along with the oil price.

"With a nascent recovery hopefully in sight it would be tempting to relax the extraordinary policy effort of the past nine months," it says. "Tempting, but wrong."

While fiscal consolidation would eventually be required in many countries it was important the boost from fiscal policy not be withdrawn at a pace that would jeopardise recovery.

And risks remain in the financial sector, the OECD cautions, arising perhaps from the commercial property cycle, as well as from a further surge in oil prices and swine flu.

Australia proves it's the lucky country as Ireland goes from bad to worst

WORST PERFORMER

Ireland will be the worst performer of the OECD economies this year, the organisation says.

Once dubbed the Celtic Tiger, Ireland's economy has been hammered by the collapse of the domestic property market and the global economic crisis, leaving the Government grappling with a soaring budget shortfall.

The OECD forecasts that GDP will contract 9.8 per cent this year and 1.5 per cent in 2010. Unemployment may rise to 14.8 per cent next year.

The recovery, likely to begin in 2010, will be "sluggish," the OECD said.

"There are risks that the recovery will be weaker than anticipated or begin later as it may be hampered by tighter fiscal policy or falling wages depressing real incomes."

About 73 per cent of Irish companies plan to cut jobs in the next six months, according to a survey published yesterday by Mercer. Almost half of Irish companies have frozen salaries or deferred pay increases in the past six months, while 9 per cent have cut pay.

The IMF has also put Ireland at the bottom of its list of developed economies. It picks its economy will shrink 8.5 per cent this year, unemployment will rise from 11.8 per cent to 15.5 per cent next year, and that it will lose €35 billion in defaulting loans, chiefly to property developers.

BEST PERFORMER

Australia's economy will shrink by the least in the developed world this year, according to the OECD.

It forecasts a contraction of 0.4 per cent - a figure shared by Portugal - and says unemployment will rise to 6.2 per cent by the end of 2009.

Australia has so far avoided a technical recession, which requires two consecutive quarters of contraction. Its Government stimulus package is among the largest per head in the OECD.

The IMF has also upgraded its outlook for the Australian economy, picking a contraction of 0.5 per cent in 2009, before growing 1.5 per cent in 2010.

This compared with a previous forecast for a 1.4 per cent contraction this year and 0.6 per cent growth next year.