UK badly placed to cope with recession

Global squeeze

The UK is set to suffer one of the most severe recession of all the G7 countries, according to a new report.

The Organisation of Economic Co-Operation and Development (OECD) says unemployment across its 30 member countries will rise by eight million over the next two years as the most “serious” recession since the early 1980s takes hold.

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

The OECD forecasts the British economy will shrink by 1.1% in 2009 before recovering to experience nominal growth of 0.8% the following year. In contrast, the US economy is expected to fall by 0.9% next year while the Netherlands and Germany will see their economies shrink by 0.1% and 0.8% respectively. Other countries, such as Ireland, will suffer even bigger declines than the UK, with -1.6% growth in 2009.

On average, economic activity is expected to fall by an average of 0.4% in 2009 across all OECD countries before rising to an average of 1.5% in 2010. Inflation is set to ease across the board.

Klaus Schmidt-Hebbel, chief economist at OECD, admits the projections are uncertain, with much depending on how quickly the financial crisis is overcome.

“Against the backdrop of a deep economic downturn, fiscal policy stimulus has an important role to play,” he adds.

In his pre-Budget report, delivered on 24 November, Alistair Darling said he expected the economic recovery to come at the next of 2009. But the Conservative Party says this projection is optimistic at best.

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