- The Washington Times - Wednesday, April 1, 2009

The U.S. economy will contract this year much more sharply than the Obama administration has forecast, and next year’s U.S. unemployment rate will reach double digits, far higher than the White House has predicted, according to a report issued Tuesday by a group representing the world’s most advanced economies.

The U.S. recession “has deepened sharply, with output contracting at an alarming pace and the labor market weakening rapidly. Since December 2007, nearly 4.5 million jobs have been lost,” the Paris-based Organization for Economic Cooperation and Development said in its report. “The financial system remains fragile and some parts of the banking sector are under considerable stress.”

The OECD, founded in 1948, is an international economic forecasting organization made up of representatives from 30 of the world’s most highly developed free-market democracies.

The authoritative OECD report, released in advance of the Group of 20 economic summit that begins Thursday in London, is significantly more pessimistic about the U.S. economy than forecasts by the Obama administration and the Congressional Budget Office (CBO).

The OECD expects the U.S. economy to shrink by 4 percent this year, much more steeply than the White House expects.

The Obama administration predicted in late February that the U.S. economy would decline by 1.2 percent this year and rebound next year at a 3.2 percent clip. The March 20 CBO forecast expected the U.S. economy to shrink by 3 percent this year and then expand by 2.9 percent next year.

The OECD doesn’t expect the U.S. economy to grow at all next year.

Also, the U.S. unemployment rate will average 10.3 percent in 2010, the OECD said. That’s well above the White House forecast of 7.9 percent and CBO’s projection of 9 percent. In fact, while the White House expects the unemployment rate to decline next year, OECD expects it to jump from 9.1 percent in 2009 to 10.3 percent next year. During the fourth quarter of next year, unemployment will average 10.5 percent, according to the OECD report.

A 10.3 percent unemployment rate for 2010 would be more than twice the 5 percent average rate of unemployment that prevailed from 2004 to 2007.

The current U.S. unemployment rate is 8.1 percent.

Seven states have unemployment rates higher than 10 percent: Michigan, 12 percent; South Carolina, 11 percent; Oregon, 10.8 percent; North Carolina, 10.7 percent; California and Rhode Island, 10.5 percent; and Nevada, 10.1 percent.

The U.S. unemployment rate reached 10.8 percent during the 1981-82 recession, which remains its peak since World War II.

“Given past history, joblessness will increase well past the end of the recession,” said Bernard Baumohl, chief global economist of the Economic Outlook Group. “Indeed, if the 1990-91 and 2001 recessions are any guide, we could be staring at a jobless recovery that could last through 2011, if not longer.”

Although the 2001 recession ended in November that year, the U.S. economy continued to shed jobs until September 2003.

The 1990-91 recession ended in March 1991, but the unemployment rate did not peak until June 1992, dooming President George H.W. Bush’s re-election chances.

“The world economy is in the midst of its deepest and most synchronized recession in our lifetimes, caused by a global financial crisis and deepened by a collapse in world trade,” said Klaus Schmidt-Hebbel, chief economist of the OECD.

The world economy will shrink nearly 3 percent this year, and unemployment will rise above 10 percent next year in much of Western Europe, according to the OECD.

The OECD’s Economic Outlook Interim Report projects that international trade will collapse this year by a staggering 13.2 percent. Trade grew by an average of nearly 6 percent a year between 1998 and 2008.

The OECD projects economic activity this year to fall by 4.1 percent in the euro area, where many leaders have rejected Mr. Obama’s entreaties to increase economic stimulus measures. The German economy will contract by 5.3 percent this year, the OECD report said.

“These are worrying forecasts” for Europe, said Melanie Bowler, an economist at Moody’s Economy.com. “Germany has been the powerhouse of the euro zone in recent years and is the key export destination for many neighboring countries.”

The OECD projections about world economic growth are also much more pessimistic than those of the International Monetary Fund. In mid-March, the IMF forecast that global output would decline by 0.5 percent to 1 percent this year. That is a much less severe contraction than the 2.75 percent plunge predicted by the OECD for 2009.

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