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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

Report: Worst Over, But Recovery Will Be Long, Weak

The Paris-based Organisation for Economic Cooperation and Development (OECD) said today that the worst of this recession -- now in its 18th month in the U.S. -- is over, but recovery will be weak and take a long time.

The group -- a collection of developed nations -- issued its half-year report on the state of the global economy.

It predicts that member countries' economies will shrink by 4.1 percent this year, which is bad, but not quite as bad as the 4.3 percent figure the group floated earlier this year.

Contrast this with what the World Bank said the global economy will shrink by this year -- 2.9 percent -- far greater than the 1.7 percent number it forecast earlier this year.

A couple of things on this:

a) The World Bank number includes all the globe's nations, including the undeveloped ones. The OECD number includes only its 30 member nations, which are among the world's most developed and include the U.S., Japan, German, Italy, etc. Sort of like the G-8 plus 22.

The World Bank's forecast is so much more pessimistic (in decline, not raw numbers) because this recession has wrecked the Third World and its recovery will take a lot longer than the First World's recovery.

b) The real takeaway here is not that the worst is over. The real takeaway is that it's not going to feel like it did before the recession for a very, very long time.

Recovery "will be weak, and that's the main story," Julian Jessop, chief international economist at Capital Economics in London, told the Associated Press.

In the U.S., it's going to take a long time to get back to the Dow's 14,000 peak in October 2007 because that surge was fueled by leveraged-based earnings. Banks as solid as Goldman Sachs leveraged up to a 30-to-1 debt-to-equity ratio; dumber banks went as high as 100-to-1. Those days are over. Heck, Congress or regulators may set actual hard caps on leverage ratios.

-- Frank Ahrens
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By Frank Ahrens  |  June 24, 2009; 11:30 AM ET
Categories:  The Ticker  | Tags: Organisation for Economic Cooperation and Development, World Bank  
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Russia has been hit by the global credit crisis (including a domestic mortgage problem), while relatively low oil prices are causing havoc. A complete luck of foreign investment (given the government’s nasty attitude toward foreign shareholders) doesn't help either. Unlike China and India, the Russians have little going for them in terms of exports outside of the oil and gas and maybe the defense sector. They never truly encouraged small business (either manufacturing or technology). The country is producing at nearly half capacity.

OECD says Russia’s economy will probably shrink 6.8 percent this year because the government was slow to launch its anti-crisis plan.

If oil prices don’t recover significantly, there could be further trouble. The Russian sovereign CDS levels are indicating increased concerns.
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Posted by: SoberLOOK | June 24, 2009 4:01 PM | Report abuse

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