- The Washington Times - Thursday, June 25, 2009

The Organization for Economic Cooperation and Development projected Wednesday that the longest and deepest post-World War II recession to afflict its 30 mostly high-income members will bottom out during the second half of 2009.

A weak and fragile recovery in economic activity is expected to begin toward the end of the year, the Paris-based group said in its latest Economic Outlook.

The OECD expects the U.S. economy to shrink by 2.8 percent this year and expand by just 0.9 percent in 2010. The recovery in the United States will be so lackluster that the unemployment rate will average 10 percent during the fourth quarter and 10.1 percent during all four quarters of 2010.

The Great Depression of the 1930s was the last time the United States endured double-digit unemployment rates for more than a year.

For the first and only time in postwar history, the U.S. unemployment rate entered double-digit territory from September 1982 through June 1983, a 10-month period. Following the last two recessions, the unemployment rate peaked at 7.8 percent in June 1992 and 6.3 percent in June 2003. May’s unemployment rate was 9.4 percent.

If the OECD’s forecast is accurate, November 2010 will be the first time since November 1982 that congressional elections were held during an environment of double-digit unemployment.

Other major economies will suffer steeper contractions than America’s this year and will experience slower growth next year, the OECD said. Japan’s economy will contract 6.8 percent this year and expand by just 0.7 percent in 2010. Economic activity in nations using the euro will shrink by 4.8 percent this year and remain flat next year, the OECD said. The unemployment rate in the euro area will be 12 percent next year.

A downbeat forecast, which was issued earlier this week by the World Bank and greeted with alarm by the markets, was more optimistic for OECD countries next year than the OECD’s projections.

“We foresee a recovery that will be rather slow and fragile for some time,” said OECD Secretary-General Angel Gurria. Compared to the World Bank’s forecast of 1.2 percent growth next year for OECD countries, the OECD report said the economy of its members would expand by only 0.7 percent in 2010.

The OECD report also warned that “the negative economic and social consequences of the crisis will be long-lasting.”

The OECD analysis discounted recent fears that the extraordinary liquidity central banks have injected throughout their economies would generate a nasty bout of inflation.

“As long as slack is large, this risk is likely to be modest,” said the report, which projected 2010 inflation rates of 0.8 percent for the OECD area and 1 percent for the United States. “Moreover, many of the instruments for liquidity injection are expected to be self-correcting as financial conditions improve,” the report optimistically noted.

“In the United States, the [Federal Reserve’s] target federal funds [overnight interest] rate is assumed to remain constant at 0.25 percent until the end of 2010 as inflation falls and the economy continues to grow below the potential rate,” the report said.

The U.S. expansion will be sluggish next year, the OECD report said, because business investment will continue to contract and consumer spending will remain constrained due to the weak labor market, huge declines in equity and housing wealth over the past two years and continuing tight credit conditions.

In a statement issued Wednesday after a two-day policy meeting, the Federal Reserve said that it “anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

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