FURTHER FISCAL measures will be needed to aid Irish economic recovery, including cuts in public expenditure and further increases in revenue, as public indebtedness increases sharply, the Organisation for Economic Co-operation and Development (OECD) said yesterday.
The OECD’s Economic Outlook report said measures would be needed over an extended period, as recovery was predicted to be weak. However, there are signs that the pace of contraction is slowing, the report said.
According to the OECD, the economy should benefit from the upswing in world trade and restored competitiveness due to declines in wages and prices.
“The ongoing domestic adjustment will nevertheless be prolonged and the economic recovery weak,” the report said.
“With Nama, the Government seeks to restore the banking system to health by recognising and dealing swiftly with losses, thus contributing to the recovery. This should be implemented along with the necessary risksharing mechanisms to protect the taxpayer.”
Looking at the global economic picture, the OECD said growth in the world’s industrialised economies has resumed after the most virulent recession for decades.
But it warns unemployment is set to continue to rise well into 2010 and to fall modestly the following year from a peak of more than 9 per cent of the workforce.
The report forecasts a “modest” recovery with real gross domestic product growing by 1.9 per cent next year across the OECD, after a shrinkage of 3.5 per cent in 2009.
It warned that in most economies growth was being held back by “still substantial headwinds”, as households, financial institutions, non-financial enterprises and, eventually, governments repair their balance sheets.
Jørgen Elmeskov, acting head of the OECD’s economics department, said: “Overall, unprecedented policy efforts appear to have succeeded in limiting the severity of the downturn and fostering a recovery to a degree that was largely unexpected even six months ago.”
But he added: “Radical policy action will be required in the years to come to restore sound macroeconomic balance, healthy growth and low unemployment. Only when that has happened will the crisis have been fully overcome.”
The contraction forecast for 2009 is slightly less severe than that suggested by the OECD’s interim assessment for Europe, the US and Japan in September. Then, aggregate GDP was expected to decline by 3.7 per cent,while in June the forecast was for a 4.1 per cent decline.
The OECD urged countries to plan their exit strategy from the huge fiscal stimulus packages put in place to address the crisis.
Barack Obama warned the US economy was in danger of falling into a “double-dip” recession unless steps were taken to rein in mounting public debt.
The OECD said the British economy was set for recovery, supported by improving financial conditions, an expansionary monetary policy and stronger international growth. – (Additional reporting, The Financial Times)
