Germany Officially in Recession As Oecd Expects Us to Lead Recovery

The world's developed countries are sliding into a protracted recession, the west's leading economic thinktank said yesterday. But while output is expected to contract next year, the US economy is predicted to lead the way towards recovery.

The Paris-based Organization for Economic Cooperation and Development (OECD) said that gross domestic product for its 30 member countries would drop by 0.3% in 2009. It forecasted that the US economy would contract next year by 0.9%, Japan's by 0.1% and the eurozone by 0.5%.

"The OECD area economy appears to have entered recession," said Jørgen Elmeskov, director of the policy studies branch and the OECD's economics department. He said that while the picture was uncertain, "projections point to a protracted downturn" with recovery not likely before the second half of next year, and the US leading the way out of recession.

The news came as Germany officially fell into recession according to economic data showing that Europe's largest economy shrank in the last quarter. The Federal Statistics Office said yesterday that GDP contracted 0.5% in the third quarter, after a 0.4% drop in the second, which corresponds to the official definition of a technical recession - two consecutive reductions in GDP.

The third-quarter contraction was much worse than expected. Analysts had predicted about 0.1%, but the slump in world trade has hit Germany, the world's leading exporter, more severely than expected. It is the second eurozone country to fall into recession - Ireland's economy contracted during the first half of the year. "The downturn is stronger than we expected. The essential message is that we've got it in black and white, the recession is here," Sebastian Wanke, economist at DekaBank told Spiegel.

The OECD said that the average unemployment rate in the OECD area, estimated at 5.9% this year, is expected to climb to 6.9% next year and reach 7.2% in 2010.

It added that inflation should continue to ease as the slowdown puts downward pressure on prices and commodity prices maintain their recent lower levels.

Elmeskov added that he saw only a slight threat of deflation apart from in Japan, where it was forecast to set in next year. "I would not see that [deflation] as something that has a high probability but it's one of these outcomes on the lower end of the probability distribution," he explained.

The OECD joined calls for fiscal stimulus to support lower interest rates to limit the recession. "The need is probably larger in the countries where the scope for monetary easing is limited and where the automatic stabilizers are relatively weak and that would be the US and Japan," Elmeskov said.

"The need is perhaps less in the eurozone because there's still some ammunition left in monetary policy."

The German recession is confirmation of the fast switch in the country's fortunes since the beginning of 2008. Germany has seen exports plunge following a decrease in demand for industrial goods. As growth stalls, car plants have been forced to send workers on leave for weeks on end.

However, amid the gloom experts said there were positive signs, with growth expected in private and public consumption thanks to wage rises and a stabilization in consumer goods prices.