By Brian Love
PARIS (Reuters) – The global economic downturn will be considerably deeper than even the International Monetary Fund forecast a month ago, the Organization for Economic Co-operation and Development’s chief economist Klaus Schmidt-Hebbel told Reuters.
Further substantial cuts in interest rates by the European Central Bank and Bank of England are totally justified, he said in an interview. These were to be expected in response to the worst spell the economy has suffered since 1946, when military spending plunged after World War Two.
“The recession will deepen…there’s no doubt,” he said. “I think this quarter will be the worst quarter of all.”
On January 28, the IMF cut its forecast for global growth to 0.5 percent in 2009 from an earlier prediction of 2.2 percent. It also forecast a 2.0 percent slide in economic output from the world’s most advanced economies as a whole, an equally large downgrading of forecasts it had made in November 2008.
Even those drastic revisions failed to reflect the extent of the downturn at this stage, said Schmidt-Hebbel.
He is preparing new forecasts for publication at the end of March by the Paris-based OECD, which will be cutting its own predictions from those it made last November.
“The shape of it will be a significantly deeper recession than what was forecast by the IMF in January, at all levels,” said Schmidt-Hebbel. “(It will be) significantly deeper and more protracted — meaning longer than what is embodied in the IMF forecasts of late January.”
Last November, the OECD predicted a 0.4 percent decrease in aggregate economic output this year from its 30 member countries. These include all of the wealthy industrialized countries and a handful of less mature economies such as South Korea, Mexico and Turkey.
“The OECD economies will do significantly worse than the world economy because in emerging economy countries like the Indias, Chinas and some others, growth will still be slightly positive in 2009,” he said.