The threat of the worst global economic slump in the postwar era loomed larger yesterday as the OECD forecast that the United States, Japan and the eurozone are all sliding into the grip of simultaneous recession.

The bleak prediction by the Organisation for Economic Co-operation and Development that all three of the world's key developed economies will enter a “synchronised downturn” for the first time in more than 30 years reinforced fears of a deep and protracted global downturn.

The OECD's stark assessment echoed a warning from the International Monetary Fund last week that the world's industrial economies will collectively shrink through next year by 0.3 per cent, in the worst such downturn since the Second World War. The OECD is forecasting a similar pace of contraction across the West.

The danger of global recession was further underlined as official figures confirmed yesterday that Germany, Europe's biggest economy, has sunk into recession for the first time in five years, with its GDP shrinking by 0.5 per cent in the third quarter, while China's industrial output growth tumbled to a seven-year low.

As the leaders, finance ministers and central bank governors of the world's key Western and emerging market economies prepare today to begin two days of crisis talks at a Group of 20 (G20) summit in Washington, the OECD also threw its weight behind the IMF's call for the governments to ramp up tax and spending measures to bolster global economic activity with a “fiscal stimulus” to reinforce interest rate cuts. “Against the backdrop of a deep economic downturn, additional macroeconomic stimulation is needed,” it said.

In its updated projections for developed economies, the OECD said that after contracting by 0.3 per cent over the past quarter, the US was set to suffer a drastic plunge in its economy, by 2.8 per cent in the present quarter.

Over 2009, the Paris-based club of 30 rich nations' governments, predicted that the world's biggest economy will now contract by 0.9 per cent, and that it will not start to see a recovery, with renewed growth, until the third quarter of next year.

In the eurozone, the OECD projects four quarters of falling output, with GDP falling by 0.5 per cent over next year, and recovery also beginning in the third quarter of next year.

In Japan, the world's second-largest economy, the forecasts envisage a more modest contraction of 0.1 per cent next year, although GDP is tipped to plunge by 1.0 per cent in the present quarter of this year, after a 0.4 per cent fall in the third quarter.

“The upshot is that the OECD as a whole is currently in recession, and will likely stay there for some time,” Jorgen Elmeskov, the organisation's chief economist, said.

Mr Elmeskov highlighted the risk that further shocks from fresh financial convulsions could lead to an even more drastic downturn than was forecast yesterday. The OECD's projections were based on its assumption that the “extreme” financial turmoil since mid-September would prove only short-lived, although it is expected to be followed by further more limited fallout across the world financial system through most of next year. “The need for further measures to stabilise financial markets cannot be excluded,” it said.

After a series of steep cuts in interest rates by the world's main central banks, the OECD cautioned that scope for further reductions was limited in some countries, notably in the United States and Japan.

As the G20 also prepares to debate a regulatory overhaul of the policing of markets and financial institutions, the OECD sounded a warning against excessive action that could leave previously open markets hamstrung.

Mr Elmeskov said: “There is a risk in the current environment of regulatory backlash against open and competitive markets more generally. Such a development would be very detrimental.”

The OECD called for international co-operation to ensure that new regulatory measures do not distort competition. It said: “When addressing these issues, it will be important to focus on reforms to the global financial architecture and, at the same time, resist pressures for a wider rollback of open markets which could prove costly.”

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