The Organization for Economic Cooperation and Development said Wednesday that the global recession is nearing the end, although it warns that the recovery will likely be weak.

In the latest edition of its Economic Outlook, the group says that the slowdown in OECD economies is reaching the bottom, but recovery is “likely to be weak and fragile, and the economic and social damage caused by the crisis will be long-lasting”. It forecasts that U.S. GDP will fall 2.8% this year, but that is a sharp upward revision from the 4.0% decline projected in March. Additionally, growth in 2010 is now forecast at 0.9% compared with 0% previously. The OECD says that it expects the trough in U.S. activity to be reached during the second half of this year, but it also warns that “as the impact of the stimulus measures fades, increased savings by corporations and consumers to reduce their indebtedness will continue to hold back growth.” As a result, it says that the recovery will not be strong enough to stop unemployment rising to around 10% over the next two years.

For Canada, it predicts a 2.6% GDP contraction this year, followed by a 0.7% rise in 2010. “The sharp contraction that began in the last quarter of 2008 intensified in the first quarter of 2009, led by collapsing exports, fixed investment and stockbuilding. The pace of contraction appears to be slowing, but recessionary conditions are expected to linger through the third quarter, with only a slow recovery thereafter,” it says, adding that unemployment is projected to keep rising until early 2010 and inflation pressures to stay muted.

“Canada is expected to remain in recession through the third quarter and then begin a mild recovery as confidence slowly returns and financial conditions improve,” it says.

Japan’s GDP is forecast to fall 6.8% in 2009 and to rise 0.7% in 2010, compared with March projections of falls of 6.6% and 0.5% respectively. “There are signs that the slowdown triggered by the collapse in trade is coming to an end but the recovery will be slow,” the OECD says. “With high unemployment and much unused productive capacity, deflation is likely to become further entrenched.” The group also notes that signs of recovery are not yet clearly visible in the euro area. European GDP is expected to contract 4.8% this year and to stay flat in 2010. The previous projections were for a 4.1% fall in 2009 and a 0.3% fall in 2010. “Each country has its own specific combination of weaknesses such as bursting housing bubbles, declining exports and damaged financial sectors. The eventual recovery is likely to be slow as rising unemployment will hit consumer spending,” it says.

The OECD says it sees continued downward pressure on inflation over the next two years but little risk of sustained deflation outside Japan. Because of the weakness of the expected recovery, the OECD argues that governments need to implement announced stimulus measures promptly and fully.

“These tax breaks or spending measures should not be withdrawn at a pace which jeopardizes the recovery. Similarly, better regulation of financial markets to guard against future crises is now urgent,” it adds. When the recovery is sufficiently strong, fiscal consolidation will be needed, it says. To avoid damaging long-term growth prospects, this will mean careful targeting of where spending can be cut and taxes raised.

“The required consolidation is large in some cases but it is not without precedent,” said Jorgen Elmeskov, acting chief economist. “What is without precedent, though, is the simultaneity of fiscal consolidation across countries.”

IE