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OECD warns of collapse in trade for world eco -

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Reporter: Stephen Long

ELEANOR HALL: From bad to worse. The World Bank and the OECD are warning of a collapse in trade,
economic growth and jobs in the world economy.

It's no coincidence that they are releasing their reports now. It is designed to influence the
meeting of leaders from the world's 20 largest economies in London this week.

And the OECD does provide a boost for the Rudd Government. It ranks its stimulus package as the
most effective in the world.

Joining me now with more details is our economics correspondent Stephen Long

So Stephen, take us through these figures from the World Bank and OECD.

STEPHEN LONG: Well, Eleanor it is a case of grim and grimmer. The World Bank is pointing to an
overall fall in global economic growth of 1.7 per cent and a halving of growth in the emerging
economies with them growing at just two per cent, zero if you exclude India and China.

The OECD is far more gloomy. It is predicting an overall fall in economic growth around the world
of 2.7 per cent - much worse in the rich nations. The 30 member states of the OECD on its
prediction will see their economies shrink by an average 4.3 per cent; 6.6 per cent in Japan and
the trade figures are shocking.

Its figures show an absolute collapse in trade with trade contracting by 24 per cent; 24 per cent
in the final three months of last year which really has no precedent and on its figures there will
be average decline in global trade of more than 20 per cent annualised in the six-month period from
December through to mid-year.

And then you get to unemployment where you are looking at average double digit unemployment rates
across the OECD with 10.3 per cent of Americans out of a job and an unemployment rate of nearly 12
per cent on average in Europe.

ELEANOR HALL: So how many people on these forecasts will be losing their jobs?

STEPHEN LONG: We are talking an increase in joblessness in the tens of millions. In fact at the
press conference in Paris where the report was released the chief economist of the OECD, Klaus
Schmidt-Hebbel outlined some of the numbers. Here is what he had to say.

KLAUS SCHMIDT-HEBBEL: The number of unemployed in the G7 countries will almost double from its
level in mid-2007 when it was around 19-million people to reach something close to 36-million
people in late 2010.

For the OECD economy at large, we anticipate an increase in the number of unemployed by 25-million
people approximately.

STEPHEN LONG: And Eleanor, just to put it in context, in context that increase of 25-million people
out of a job in the 30 member states of the OECD would take the unemployment rate in the OECD above
60-million people.

And then of course, you are talking tens of millions more in the emerging economies and the
developing world which really are going to be in dire straits as this progresses. And they are also
warning the OECD, that it could get far worse because all the risks are weighted to the downside.

Here is Klaus Schmidt-Hebbel again:

KLAUS SCHMIDT-HEBBEL: The most important risk is that the weakening real economy will further
undermine the health of financial institutions. There is a risk that this vicious circle between
deteriorating real conditions and bad loans and the low portfolio of banks will lead to further
weakening of the banks beyond what is anticipated in our base scenario; which in turn forces them
to curtail lending beyond what is anticipated by us.

Second risk is that the government actions will prove insufficient to restore stability and
confidence in financial markets and there is also the risk that some central and some Eastern
European economies, as well as a growing number of developing economies, may face external payments
and domestic banking crisis which will intensify the global downturn and raise the demand for
external funding.

ELEANOR HALL: All very grim. That is Klaus Schmidt-Hebbel, the chief economist at the OECD.

But Stephen, there is politics at play here, isn't there, with the timing of these gloomy
forecasts. Presumably the economists are wanting the G20 nations to commit to more government
stimulus?

STEPHEN LONG: Yes, Eleanor but not all of the nations in the G20 or the OECD. In fact one of the
interesting things in their analysis is they have looked at fiscal stimulus and worked out who can
afford to spend more money and who can't in their opinion. And they include among the nations who
cannot afford to spend more money on stimulus: Greece, Italy, Ireland, Iceland naturally, and quite
a few others.

ELEANOR HALL: What about the UK?

STEPHEN LONG: Well, that is, they are silent. They said including these nations and they didn't
mention the UK or America, but you are looking at a budget deficit in the US of 12 per cent of GDP
and a similar figure in Britain and an average budget deficit of nearly nine per cent of GDP across
the OECD nations.

So if you have got a budget deficit of 12 per cent of GPD, one would presume that there are limits
to how much more money you can spend and that US deficit does not include the money that they have
allocated to the banking bailouts.

ELEANOR HALL: Now the OECD they did single out Australia's stimulus package for special mention.
Tell us about that?

STEPHEN LONG: Well, it is interesting. The only mentions of Australia in this 150-page report
related to the stimulus package and they have, in effect, said that Australia has the most
effective stimulus package in the world. Their view is that tax cuts are of limited effect because
people save the money and government investment is the key.

And they praised the stimulus package here because of its level of government investment, which is
the highest amongst any of the nations in the OECD, and they have also said that the multiplier
effects, the knock-on effect for jobs and economic growth from the Australian package is, on their
analysis, the highest in the world and only Australia and America are looking at a stimulus of more
than one per cent of GDP from what they are doing.

So, really this is a massive boost to the Federal Government as it tries to defend its spending and
they also say Australia is amongst the nations that can afford to spend more.

ELEANOR HALL: Stephen Long, our economics correspondent, thank you.