Reserve Bank has declared the nation in recession, abandoning its earlier forecast of positive growth and paving the way for further interest rate cuts as the OECD have forecast unemployment rates exceeding 10 per cent, putting 36 million people out of work throughout the major industrial nations.
The new OECD and World Bank forecasts prepared for this weekend's London G-20 leaders meeting are far more pessimistic than those of the International Monetary Fund forecasts released just over a week ago.
They have the economies of the 30 major developed nations collapsing by between 4 and 7 per cent this year followed by "stagnation" in 2010.
The OECD warns that its forecast of "economic haemorrhaging" is a best-case scenario, saying the risks are "firmly tilted to the downside".
The Organisation says world trade is in "free fall", collapsing at an annualised pace of exceeding 20 per cent, "a rate not previously experienced over the last four decades"....
Speaking seperately, but with advance knowledge of the new OECD and World Bank forecasts released in Paris and Washington overnight Reserve Bank Deputy Governor Ric Battellino told a conference in Brisbane he now expected Australia's economy to shrink over the course of 2009.
It is the first such admission from a Reserve Bank official. As recently as February the Bank was predicting positive growth throughout the year.
Australia had the first of the 2 consecutive quarters of negative growth commonly taken to define a recession at the end of last year. The Deputy Governor told the conference he expected more to follow with"further falls in the next few quarters".
Asked whether that meant recession the Deputy Governor said "yes".
"My impression is that most households and businesses feel that this downturn is severe enough that they would think it is a recession," he added.
Australia's budget surpluses, previously amounting to 1.5 per cent of GDP across state and federal governments should collapse to a combined deficit of 2.5 per cent of GDP - the "largest tunaround in the post-war period".
The forecast implies a combined government deficit of around 27 billion.
En-route to London for the G-20 conference Treasurer Wayne Swan said the forecasts underlined "just how severe this global recession has become."
"The world economy is in the midst its deepest and most severe recession in our lifetimes, and Australia will feel the consequences," he said.
"We are better placed than others, but we can't defy gravity."
The OECD identifies Australia and the United States as having done the most to stimulate their economies and commends the Rudd government's mix of government spending and bonus payments as being more effective than tax cuts of the kind promoted by the Opposition.
It finds that in Australia's case each dollar spent on tax cuts would have boosted economic activity by only 30 cents in the first year. By contrast it expects each dollar the government spends directly or in bonus payments to boost the Australian economy in the first year by 90 cents and 40 cents.
Business Council President Greig Gailey will tell the Committee for Economic Development of Australia in Melbourne today that the recession has opened up "cracks in some vulnerable sectors of the Australian economy".
"The downturn is demonstrating that their long-term prospects may be poor."
However he will call on Australia to "restrict protectionist impulses and beggar-thy-neighbour policies".
"Open trade and investment are in Australia’s interests as a trading and capital-importing nation," he will tell the conference.