Tokyo / London: The Organization for Economic Cooperation and Development (OECD) added to a grim outlook from the World Bank on Monday, saying major economies will contract throughout 2009 and the problem of unemployment will linger.
Word of caution: World Bank chief economist Lin says he is concerned about rising borrowing costs and weak external financing conditions. Jo Yong-Hak / Reuters
“We see a very difficult 2009, with negative growth in the OECD area. Unemployment problems are going to continue to linger,” Angel Gurria, the head of OECD told Reuters television in an interview on the sidelines of a conference in Paris.
Earlier, the World Bank said prospects for the global economy remain “unusually uncertain” as it cut 2009 growth forecasts for most economies.
Governments around the world have borrowed hundreds of billions of dollars to fight the worst economic crisis in decades, providing incentives for businesses and consumers to spend and embarking on big infrastructure programmes to create jobs and stimulate activity.
They should stick to spending programmes to reignite growth because their economies are still weak in spite of signs that the worst of the crisis may be past, World Bank chief economist Justin Lin said in an interview with Reuters.
Lin also said he was concerned about rising borrowing costs and weak external financing conditions for the emerging economies of Europe and Central Asia.
On Sunday, European Central Bank (ECB) president Jean-Claude Trichet warned, however, that governments now had no room for more debt and would have to start bringing down budget deficits.
“There is a moment where you can’t spend anymore and you can’t accumulate any more debt. I think we are at that moment,” Trichet told Europe 1 radio.
The euro slipped against the dollar and yen as the market awaited the ECB’s first ever one-year refinancing operation on Wednesday aimed at getting banks lending again and reducing the cost of borrowing for banks, firms and consumers.
Like the ECB, the US Federal Reserve has cut interest rates to record low levels and used unorthodox means to pump more money into the system.
The Fed’s interest rate setting committee meets on Tuesday and Wednesday and economists polled by Reuters see no chance that the Fed will raise its benchmark short-term interest rate from the current level near zero.
The Fed is also seen unlikely to ramp up its purchases of US government and mortgage-linked debt as investor focus shifts to inflation on evidence that the economy is stabilizing.
The World Bank cut its GDP forecasts for Japan, as well as the US and the euro area, for this year and next.
The bank, which has recently cut its forecast for the global economy to a contraction of 2.9% from a projection for a 1.7% decline set in March, was releasing details on individual economies for the first time on Monday.
Concerns that investors might have been too quick to price in a quick and lasting recovery prompted stock markets to retreat last week after a powerful rally from their March lows.
European shares fell on Monday despite gains in the mining sector after Xstrata said it wanted merger talks with Anglo American.
Anglo shares rose 6%. Evidence for a recovery remained mixed.
German business sentiment rose to a seven-month high in June but analysts said plenty of risks remained given that the rise in sentiment was being fuelled by expectations.
“The Ifo index often gives misleading signals at times when the expectations and current conditions deviate strongly. At the moment, current conditions have stabilized slightly, while expectations have shot up,” said David Milleker, an economist at Union Investment.
Asking prices for homes in most of Britain fell in June after four months of rises, but the annual rate of decline moderated to an eight-month low, property website Rightmove said on Monday.
A lack of new sellers has boosted property asking prices this year, although there remains a big gap between sellers’ aspirations and actual selling prices.
“It is a mistake to confuse the upturn in enquiries and sales with a return to a more normal market,” said Miles Shipside, Rightmove’s commercial director. “While conditions are much improved on the darkest days of last year, we are now starting to see some big distortions and wild swings due to the combined effect of the recession and restricted mortgage availability.”