Forecasts out overnight estimate a deeper than expected drop in growth among the world’s most advanced economies and a surge in unemployment over the next year.
The forecasts came from the Organisation for Economic Co-operation and Development for tomorrow night’s Group of 20 leaders meeting in London.
The OECD estimates that growth in the 30 leading economies will fall by 4.3% this year and be essentially flat next year, and that an extra 25 million people will be made jobless in the same economies, with one in 10 workers being unemployed by late next year, or an unemployment rate of 10% or more.
The news came as Japan’s recession deepened yesterday with the country’s unemployment rate rising to a three-year high and wages falling. As well, job vacancies fell the fastest they have for 30 years as employers shut down hirings.
The country’s jobless rate rose 0.3% to 4.4% in February and 4.1% in January. The drop in the ratio of jobs to applicants fell to a low not seen since the first oil shock in 1974.
There are nearly two applicants for every new job opening in Japan.
Wages fell 2.7% in the month. Monday we heard that industrial production fell 9.4% in February, although there are signs it could rise in March and April. Household spending fell 3.5%, a 12th monthly decline: no wonder retail prices were flat (no demand) and retail sales fell 5.8%
It’s no wonder that jobs, rather the lack of them, is going to be the big issue over the next couple of years.
According to the OECD, Australia and others in the top 30 economies of the world face an explosion of unemployment over next year.
The forecasts issued last night make uncomfortable reading, especially for those still in denial about the need for stimulatory packages.
The OECD’s boss, Angel Gurria said in a speech in Rome that his organisation saw unemployment will be hitting 10% across the 30 member countries in 2010.
That means one in 10 workers in the advanced economies will be without a job next year “practically with no exceptions’. The unemployment rate will have risen from 5.6% in 2007, when the credit crunch erupted.
In some countries it will have more than doubled in around three years.
The surge in jobless numbers will come as the 30 advanced economies suffer a much bigger average contraction in growth this year than forecast by any other international agency.
The OECD believes these big economies (which are the powerhouses of the global economy) will contract by 4.3% this year, compared to the just released International Monetary Fund forecast of a 3%-3.5% contraction. 2010 will bring little or no growth.
"Our OECD projections indicate that the ongoing contraction in economic activity will worsen this year, before recovery gradually builds momentum through 2010. The uncertainties attached to this bleak outlook are exceptionally large, while the risks remain firmly inclined to the downside," Mr Gurria said in his speech.
"And the job crisis is spreading rapidly around the world. The International Labour Organisation estimates that world-wide unemployment could increase by 40 million people by the end of this year."
He warned that the ranks of the unemployed in the 30 advanced OECD countries would swell “by about 25m people, by far the largest and most rapid increase in OECD unemployment in the postwar period”.
Suddenly it’s no longer a financial crunch with a broad reaching recession tagging along: the sweeping impact of the worst slowdown since the Second World War, especially in the manufacturing sector, among exporters and high employing sectors, is pushing millions of people a month out of work around the globe.
This is an issue the European members of the Group of 20, whose leaders meet on Thursday in London, still don’t understand. Their economies have social safety nets in place already to handle unemployed people: the question now is whether they are financially equipped to handle what the OECD is forecasting to be an explosion in jobless numbers in the next year to 18 months.
Australia may or may not be among the few exceptions: we don’t have a damaged financial system or a shattered housing sector like the US, UK, Spain and other economies do, but then Germany, Japan and France didn’t have a housing bubble either.
In figures out this Friday in the US, March’s jobless rate is expected to jump to 8.5% as the number of unemployed is tipped to rise by 600,000 or more. Spanish unemployment is rising past 15%, having exceeded the OECD forecast as the housing sector collapses.
The OECD chief said the misery of joblessness was “rapidly turning into a jobs and social crisis”.
Mr Gurría criticised the lack of focus on the unemployed in much of the debate over fiscal stimulus in the world; comments that will resonate here with the absurd criticism of the stimulation so far injected into the economy by the Rudd Government. If the Government didn’t spend, the same people would be bagging it for failing to spend to help the economy and soften the impact of the expected rise in unemployment.
“The bad news is that these additional funds are rather limited, accounting for about 8 to 10 per cent of total expenditures in the United States and France and less in most of the other countries. This may turn into a missed opportunity.
"The global economy is contracting.
“The credit squeeze, negative wealth effects (stemming from lower house and equity prices) and a generalized loss of confidence are dra
