OECD expects world economy to shrink

The world economy is likely to shrink in 2009 despite growth in Asian powerhouses China and India, the head of the OECD Angel Gurria said on Friday, warning of a first global contraction in 60 years.

"Now we are probably seeing a world which will go negative because even the positive growth of India and China is not going to be enough to offset the negative growth in (developed countries)," he told reporters in Beijing.

Mr Gurria was replying to a question about his expectations for growth in 2009.

His remark came after the International Monetary Fund said it also believed the global economy could contract in 2009.

IMF managing director Dominique Strauss-Kahn said earlier this month that 2009's world economy would see the "worst performance in most of our lifetimes".

Mr Gurria, secretary general of the OECD, also said that growth in China's economy this year would slow to six to seven per cent.

The World Bank last week published a new forecast for the Chinese economy, reducing its growth prediction for 2009 to 6.5 per cent from 7.5 per cent.

China's economy grew nine per cent in 2008, according to the government, down from 13 per cent in 2007. Mr Gurria said there would be "very negative" growth in Organisation for Economic Cooperation and Development countries, adding that firm estimates would be released soon.

The OECD groups 30 industrialised, democratic nations and serves as a policy adviser and forum for debate on economic and political issues.

Mr Gurria expressed hope that a $586 billion Chinese economic stimulus package announced late last year could spur domestic demand, helping China act as a world growth engine.

"I would like this (package) to be as successful as possible because we need a few locomotives. Our traditional locomotives are all in the repair shop," he said.

"We need the aggregate demand of China and countries like India."

Mr Gurria spoke at a briefing held to release an OECD report on China's rural development.

The global crisis has left millions of China's migrant labourers jobless, raising official fears of social instability.

China this month vowed a massive boost in spending on social welfare services aimed in large part at meeting the needs of such migrants. The OECD report said, however, the crisis will strain China's ability to shield migrants and the rural regions that depend on their remittances from the impact of the crisis.

"The economic crisis threatens every aspect of every country in the world and therefore China and therefore the rural population of China," Mr Gurria said.

Prime Minister Wen Jiabao told China's Parliament earlier this month the country was aiming for an eight per cent growth rate, but added that goal would be "difficult" to achieve.

Eight per cent growth is a figure the government has long considered the minimum needed to create enough jobs and thereby prevent social unrest stemming from widespread unemployment.