OECD predicts sharp rise in unemployment

PARIS, France (CNN) -- International economic officials have predicted a sharp rise in unemployment in its member countries over the next two years, saying eight million more workers will lose their jobs.

About 34 million people are currently unemployed in the the Organization for Economic Cooperation and Development's 30 member nations, which include most countries in Europe and North America, along with Japan, Korea, Australia, and New Zealand.

The supra-governmental economic body said Tuesday that number could rise to 42 million by 2010 -- a 25 percent jump.

The organization's latest economic outlook, published Tuesday, also predicts economic activity in its member countries will fall by an average of 0.4 percent in 2009 before rising slowly to 1.5 percent the following year. Inflation will ease in all OECD countries, it said.

The biannual economic outlook analyzes major trends and forces shaping short-term economic prospects. See how unemployment varies between nations. »

"Uncertainties surrounding the projections are exceptionally large," said OECD chief economist Klaus Schmidt-Hebbel. "Much will depend on how quickly the financial crisis -- the main driver of the downturn -- is overcome."

The OECD predicted U.S. output falling in the first half of 2008, then gradually picking up as the effects of the credit crunch ease, the housing downturn bottoms out, and the impact of lower interest rates takes hold.

"Weak household spending due to large losses in households' wealth will limit the strength of the recovery," the report said, predicting U.S. GDP falling 0.9 percent next year before rising 1.6 percent in 2010.

Declining consumption and investment in Europe will contribute to a fall in activity there, the OECD report said. The downturn will be severe in economies most vulnerable to the financial crisis or sharp falls in house prices, including Hungary, Iceland, Ireland, Luxembourg, Spain, Turkey, and Britain, the report said.

Europe will make a gradual recovery in the wake of interest rate cuts and the easing of turbulence in the financial markets, the OECD said. It predicted GDP in the Euro area will fall 0.6 percent in 2009 and climb 1.2 percent in 2010.

A government budget stimulus in Japan will contribute to a brief growth spurt there in early 2009, but output will stagnate over the second half of the year, the OECD said. There is also a risk of deflation in Japan.

Japan's GDP will fall 0.1 percent next year, the OECD predicted, before rising 0.6 percent in 2010.

The global economic slowdown will affect the major emerging-market economies like China, Brazil, Russia, and India, the report said.

Schmidt-Hebbel said concerted efforts to stabilize financial markets appear to be working, but governments must also be ready to expand them if the need arises. Government support, he said, should be limited to firms that are of "systemic importance."

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