LONDON — The world's developed countries, hard hit by the financial crisis, have probably tipped into a recession that will last at least through the first half of 2009, according to projections issued Thursday.
The Paris-based Organization for Economic Cooperation and Development forecast that economic output would shrink 1.4% this quarter for the 30 nations that make up its membership -- and keep contracting until the middle of next year.
That would mean the developed world has entered a slump expected to last at least three quarters; two consecutive quarters is a common definition of recession. For all of 2009, these economies are expected to contract 0.3%.
Additionally, the U.S. economy is forecast to fall 2.8% in the fourth quarter, after a 0.3% drop in the third quarter, and then shrink 0.9% in 2009. Japan's economy is expected to shrink by 0.1% next year and the Euro area by 0.5%.
That would be the first time since 1974-75, when they were suffering from the Arab oil embargo and a severe bear market for stocks, that the U.S., Europe and Japan had fallen into recession around the same time.
In the wake of the first oil price shock in 1973, Japan's economy shrank in 1974, followed a year later by those of the U.S. and Europe.
The latest projections represent a sharp downgrade since June, when the OECD forecast members' growth at 1.7% in 2009 and indicated that the worst of the financial crisis might have passed. Since then, though, the outlook for the world economy has slipped sharply amid the banking crisis, which is rapidly spreading.
The OECD's predictions echo those made from the International Monetary Fund last week. It too said that economies of the U.S., Europe and Japan were set to contract in 2009.