Recession turning into 'social crisis', warns OECD[de] 

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. 

European Commissioner for Employment and Social Affairs Vladimir Špidla said: "The economic crisis is a global crisis and is hitting labour markets around the world. We need to find global solutions to tackle its social impacts and to help people who are losing their jobs. Our priority has to be to keep people in work wherever possible and to maintain and improve their skills so they can find new jobs. By coordinating our action at a global level we can make sure that the human dimension is at the centre of discussions on improving international governance."

John Evans, leader of the trade unions in the  OECD bloc, told reporters that workers' organisations should have formal representation at the London G20 to ensure that safeguarding employment is near the top of the agenda. 

"Workers are paying the price of the crisis and anger is going to mount unless we get clear answers," he said. 

In the European Parliament, Socialist MEP Elisa Ferreira asked ECB President Jean Claude Trichet: "Is it possible to revitalise financial markets, with banks starting to lend again, before real economy recovers?" She added: "What is the recovery plan's goal? Jobs?" 

"The goal is to have both growth and jobs," explained ECB President Jean Claude Trichet. "Key to ensuring recovery," the ECB president added, is "doing what has been decided as rapidly as possible". "Growth in 2010 depends on us," he said.