In March, the OECD forecast a 4.3 percent drop for the year -- making the latest revision the first upward forecast change in two years. The acting head of the OECD's economics department, Jorgen Elmeskov, is quoted by the Associated Press as saying, "A really disastrous outcome has become more of a remote risk." However, Secretary General Angel Gurria added that the recovery "is likely to be both weak and fragile for some time."
The economic group expects that the U.S. economy will shrink by 2.8 percent in 2009 after 1.1 percent growth in 2008. The OECD believes the Japanese economy will contract by 6.8% this year with the 16-nation euro zone experiencing a decline of 4.8 percent. The consortium also forecast a return to growth for all three regions next year, as overall growth for its membership is expected to average 0.7 percent in 2010.
This new forecast is an improvement from the group's last forecast for a contraction of 0.1 percent for the year. OECD's forecast for world economic growth (which is defined as its members plus Brazil, Russia, India, and China) calls for 2.3 percent growth compared to 2009's decline of 2.2 percent.
The OECD cautioned that the speed of any economic rebound will vary across the globe. While China seems to be in the process of recovering, the U.S.'s outlook is bleaker. The group believes that the end result of the stimulus steps taken to repair banks should lead to a recovery that is "uncharacteristically weak and insufficient" to offset 10 percent unemployment.
The group also argues that the recovery may be slow in the euro zone, with rising unemployment rates weighing on consumer spending. The OECD believes that both areas should start formulating their "post-crisis policy strategies" in order to roll back their stimulus measures while trying to ensure "a faster and more robust recovery." The group added that countries that haven't acted to remove uncertainty about banks' balance sheets should act to do so, with a suggestion for bank stress testing as a measure to restore confidence.
This report should instill a bit of confidence in the American market, but is it accurate? I like the fact that the group cautions that the recovery will be "both weak and fragile for some time," because I feel that is what will happen. There does appear to be a light at the end of the tunnel, the problem is that many Americans want to reach the end of the tunnel right now. This isn't the way that it works. There will be further hardship, there will be more unemployment, there will be more cuts in consumer spending.
We can't rush our way through this, as the OECD said, it is time for countries to develop their emergence strategies. The government need to take these steps in order to make sure that the light that some see at the end of the tunnel isn't an oncoming train.