By Sandrine Rastello and Simon Kennedy
March 31 (Bloomberg) -- The World Bank and OECD warned surging unemployment may inflict another blow on the global economy as they cut their economic outlooks for emerging and rich nations. The Organization for Economic Cooperation and Development said in Paris that the economy of its 30 members will contract 4.3 percent this year and predicted unemployment in the Group of Seven will reach 36 million late next year. The World Bank lowered its growth forecast for developing countries this year by more than half to 2.1 percent and President Robert Zoellick expressed concern of a looming “unemployment crisis.” Rising joblessness adds urgency to the London summit of Group of 20 leaders in two days to find remedies to the worst economic and financial turmoil in six decades. Unemployment is climbing in Japan and Germany, new data showed today, and job cuts from Volkswagen AG to Agilent Technologies Inc. are pressuring authorities everywhere to do more even as they run out of room to ease fiscal and monetary policies. “We must take the action necessary to prevent the suffering of the past in mass long-term unemployment,” U.K. Prime Minister Gordon Brown, who will host the April 2 G-20 talks, said in London today. Zoellick said in a speech that “2009 will be a dangerous year.”
Unemployment Growing
Japanese unemployment surged to a three-year high of 4.4 percent in February, while Germany’s jobless rate gained for a fifth month in March, reports showed today. The OECD predicted unemployment across its bloc will reach 10.1 percent by the end of 2010 from 7.5 percent in the current quarter. “It is important and necessary for the summit to take credible decisions which will help to halt and reverse the current slowdown and to instill a sense of confidence in the global economy,” Indian Prime Minister Manmohan Singh said today before leaving for London. The OECD, which in November predicted an economic contraction of 0.3 percent this year, urged policy makers to “devise and implement without delay a coherent strategy that squarely tackles the mess in financial markets.” Governments with the scope to do so should introduce more fiscal stimulus to support demand, it said, singling out Canada, Germany, South Korea and Australia.
Japanese Contraction
Still, it was unlikely that world leaders would be able to agree to coordinate global stimulus measures, and the possibility that existing national plans may prove inefficient remains one of the biggest risks to a recovery next year, OECD Chief Economist Klaus Schmidt-Hebbel said today. The OECD projected Japan’s economy will shrink 6.6 percent, outpacing declines of 4.1 percent in the euro area and 4 percent in the U.S. Central banks should keep interest rates close to zero, and the OECD also urged policy makers to find ways to rid banks of toxic assets. Deflation “appears to be a significant risk” for many economies next year, the OECD said. The organization warned its outlook was subject to “risks that remain firmly tilted to the downside,” citing the potential for another bout of problems at banks. Deutsche Bank AG Chief Risk Officer Hugo Banziger said yesterday the credit crisis is “far from over.”
‘Real Hardships’
The World Bank’s Global Economic Prospects report forecast the global economy will shrink 1.7 percent this year, and Zoellick identified central and eastern European economies as the most vulnerable to the international slump. The OECD estimates a global contraction of 2.7 percent.
While joblessness, home repossessions and the collapse in asset values are “real hardships” in the developed world, Zoellick said poorer nations “have much less cushion: no savings, no insurance, no unemployment benefits, and often no food.” Capital flows to the developing world have shrunk this year to about one-third of the peak of $1.2 trillion reached in 2007. Financing shortfalls, declining commodity prices and a drop in demand may lead to a “social and human crisis,” Zoellick said.
In a separate report also released today, the Asian Development Bank cut its own forecast for the second time in four months to show the region, excluding Japan, growing by 3.4 percent this year. The revised forecasts were coupled with warnings that governments not resort to protectionism. The OECD predicted that international trade will plunge more than 13 percent this year. While the OECD said its bloc will contract 0.1 percent next year, the World Bank predicted the global economy will grow 2.3 percent. “Even if global growth turns positive again in 2010, output levels will remain depressed, fiscal pressures will mount and unemployment levels will rise further in virtually every economy well into 2011,” Hans Timmer, a World Bank economist, said in a statement.
To contact the reporters on this story: Sandrine Rastello in Paris at srastello@bloomberg.net; Simon Kennedy at skennedy4@bloomberg.net
March 31, 2009 08:35 EDT
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