Presenting its interim outlook for major world economies, the Organisation for Economic Co-operation and Development (OECD) said the 30-nation bloc's economy will likely contract by 4.3% this year and staying "mostly flat" in 2010.
Weak export markets, falling investment and a continuing credit crunch will hit euro-area activity hard over the coming six months. The recovery will only begin to build momentum by the middle of 2010. GDP is projected to drop 4.1 percent in 2009 and by 0.3 percent next year. Consequently, unemployment will climb continue to climb om the coming months.
According to the OECD, by the end of 2010, the unemployment rate could be approaching double digit figures in all G8 countries with the sole exception of Japan. In the OECD area as a whole, this would compare with a 5.6% low in 2007. About 25 million workers are expected to lose their jobs, pushing entire families into poverty.
"Governments need to take quick and decisive action to avoid the financial crisis becoming a fully-blown social crisis with scarring effects on vulnerable workers and low-income households," OECD Secretary-General Angel Gurría told G8 labour and employment ministers over the weekend.
Gurria noted that the fiscal stimulus packages introduced so far include additional funds for the labour market and social policy measures. But "the bad news is that the additional funds are rather limited, accounting for about 8-10% of total expenditure in the United States and France and less in most of the other countries. This may turn into a missed opportunity," he said.
'Safety net' needed
In an attempt to ease soaring unemployment, the OECD recommended providing adequate safety nets for job losers and low-income families, which it said should prevent them falling into poverty and keep stable demand.
Promoting labour demand while avoiding excess layoffs by credit-constrained firms is also key, the OECD said. Short-time working subsidies or reduced social-security contributions would help preserve viable jobs if they were well-targeted at firms facing temporary falls in demand and workers who would find it difficult to get other jobs if made redundant.
According to the Paris-based organisation, decisive actions targeted at young people at risk have to be taken immediately. For example, subsidies for apprenticeship contracts for unskilled youth and promotion of second-chance schools could help reduce the risk that they will enter the labour market without qualifications.
"Restoring global growth is an economic and political priority, but also an ethical, moral, social and human imperative. And employment and social policies are an essential component of a successful strategy to bring the OECD and non OECD countries back on a growth track," Gurría added.
Further interest cuts expected
Separately, the EU announced today that the eurozone annual inflation is expected to be 0.6% in March 2009, against 1.2% last month, according to a flash estimate issued by the EU statistical office today (31 March).
European Central Bank President Jean-Claude Trichet said he expects the inflation rate to remain well below two percent for this year and 2010, but ruled out the likelihood of deflation for the euro area.
Speaking yesterday (30 March) in the European Parliament, Trichet said recovery in 2010 will happen if the policy decisions already taken are implemented "as rapidly as possible".
The ECB board is expected to announce further interest rates cuts on Thursday.
