The Organization for Economic Cooperation and Development (OECD) believes that as the U.S. economy has most likely slipped into a recession, recovery, albeit slow, will begin mid-2009.
If financial conditions do not improve quickly, additional fiscal stimulus will be necessary, according to the OECD. Once the crisis has passed, the group believes the next steps should include reducing the budget deficit and addressing rising entitlement spending, according to FinancialWeek.
“The U.S. economy is likely to have already entered a recession and the near-term prospect is for further weakness,” the OECD said.
It repeated its forecast it gave on November 13 saying that the U.S. economy would likely contract 0.9 percent next year, after 1.4 percent growth in 2008.
U.S. household wealth has suffered a $7 trillion hit from the tumbling housing and stock markets. Growth, as a result, will deteriorate as consumers cut back on spending.
“In 2010, economic activity, still supported by substantial monetary policy stimulus, is expected to gradually accelerate,” the OECD said, pegging 2010 growth at 1.5 percent, according to FW.
Due to the disruption of the financial markets, the group predicts that the potential growth rate for the economy will be much lower than originally estimated. Rapid recovery is not expected.