In the latest economic outlook from the Organization for Economic Co-operation, the group’s economists forecast a sharp rise in its members’ unemployment as recession takes hold.

The number of unemployed workers in OECD countries is expected to rise by about eight million people over the next two years, according to the latest OECD forecast. The job losses are expected amid, what the OECD terms “the most serious recession since the early 1980s”.

Jobless numbers could rise to 42 million by 2010 from 34 million currently, while economic activity is expected to fall by an average of 0.4% in 2009, before rising slowly to 1.5% the following year, it said.

The OECD sees output in the United States falling during the first half of next year, then gradually picking up as the effects of the credit squeeze abate, the housing downturn bottoms out and the impact of lower interest rates takes hold. Weak household spending due to large losses in households’ wealth will limit the strength of the recovery, it notes. U.S. GDP is projected to fall 0.9% next year, before rising 1.6% in 2010.

For Canada, it sees GDP contracting by 0.5% in 2009, before rebounding to 2.1% in 2010. “The economic downturn that started in 2007, as exports slowed in response to the deflating U.S. housing bubble, continues to worsen,” it notes. “Sharply deteriorating conditions in global financial markets, generalised softness in the U.S. economy and receding commodity prices are amplifying export weakness and dragging down domestic spending.”

“Output has been contracting since August 2008, and slack is projected to grow until the global financial crisis has run its course and external demand bounces back in 2010,” it adds. “The general government is expected to move into deficit in 2009 and 2010, a largely cyclical outcome that is not alarming and leaves room to absorb eventualities but underlines the need to keep a lid on discretionary expenditure increases.”

Euro area activity is also expected to fall over the next six months as consumption and investment declines, the OECD adds. A gradual recovery should then take hold in the wake of interest rate cuts and the easing of financial market turbulence. Euro area GDP is forecast to fall 0.6% in 2009 and climb 1.2% in 2010.

The downturn is expected to be severe in economies most vulnerable to the financial crisis or to sharp house price falls. These include Hungary, Iceland, Ireland, Luxembourg, Spain, Turkey and the UK.

A brief growth spurt is expected in Japan in early 2009 due to a government budget stimulus, but output is set to stagnate over the second half of the year. There is a risk that deflation may return, it warns. Japan’s GDP will fall 0.1% in 2009, it predicts, then rise by 0.6% in 2010.

The global slowdown will also affect the major emerging-market economies such as China, Brazil, Russia and India.

“Uncertainties surrounding the projections are exceptionally large,” warns OECD chief economist Klaus Schmidt-Hebbel. “Much will depend on how quickly the financial crisis – the main driver of the downturn – is overcome”.

“Against the backdrop of a deep economic downturn, fiscal policy stimulus has an important role to play,” Schmidt-Hebbel added.

In the report, Schmidt-Hebbel said concerted efforts to stabilize financial markets appear to be working, but governments must also be ready to expand them if the need arises. Such support should be limited to firms that are of systemic importance, he said. He added that the global scale of the financial crisis underlines the necessity for international cooperation to avoid measures that distort competition or effectively shift the problem to other countries.

IE