Page last updated at 10:09 GMT, Friday, 20 March 2009

OECD says world economy to shrink

Angel Gurria
OECD head Angel Gurria believes the world economy will shrink this year

The head of the Organisation for Economic Cooperation (OECD) has said that the world economy is likely to shrink this year.

Angel Gurria, head of the body that represents the 30 most industrialised nations, said "we are probably seeing a world which will go negative".

He said this would be despite growth in China of about 6-7% this year.

On Thursday, the International Monetary Fund (IMF) also said that the global economy would contract in 2009.

'Sharp slowdown'

Mr Gurria said that growth in member countries of the OECD would be "very negative", adding that firmer estimates would be released soon.

Speaking in Beijing, he said that "growth in the big emerging economies such as India and China would not compensate for the sharp slowdown in rich countries, resulting in negative growth for the world as a whole."

We need the aggregate demand of China and countries like India
Angel Gurria, OECD

While China's economic growth is slowing, it is still strong relative to many developed economies that are in recession.

Such continued growth is necessary to keep China's unemployment in check, said Mr Gurria.

He estimated that the "cruising speed" China needed to maintain to keep jobless levels at an acceptable level was close to 7%.

And continued strong growth in China was essential for the world economy as well, he said: "We need the aggregate demand of China and countries like India."

He said he hoped that the $586bn Chinese stimulus package announced late last year would boost demand in China, which would in turn help the global economy.

'Battered' economy

The OECD prediction of Chinese growth is in line with that of the World Bank, which lowered its forecast for 2009 to 6.5% from 7.5%.

The IMF predicted that the world economy would shrink by between 0.5% and 1% this year, the first global contraction in 60 years.

"The prolonged financial crisis has battered global economic activity beyond what was previously anticipated," it said.

It also forecast that the advanced economies would suffer a decline in output of between 3% and 3.5% in 2009, and barely grow in 2010.

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