As financial markets wrestle with the meaning of the latest last-ditch US bail-out - a $500 billion prop for the ailing banking giant Citigroup - the Organisation for Economic Co-operation and Development predicts the richest economies in the world will shrink by a collective 0.4pc next year.

"Many OECD economies are in or are on the verge of a protracted recession of a magnitude not experienced since the early 1980s," the chief economist, Klaus Schmidt-Hebbel, said.

"As a result, the number of unemployed in the OECD area could rise by 8 million over the next two years."

Australia's economy is likely to grow by a relatively healthy 1.7pc.

In contrast, the US economy will contract by 0.9pc, Britain's by 1.1pc, and Europe's by 0.6pc, the OECD's latest economic outlook report, released last night, said.

While the OECD is mildly optimistic about Australia's prospects of avoiding the worst of the meltdown, it still warns of the risk of a sharp drop in house prices.

And if house prices fell faster than their 2pc decline now, there would be a big impact on the broader economy because of the widespread practice of using housing equity to pay for other consumer goods.

Relative to average incomes, Australian house prices remain the fourth most expensive in the OECD, behind the Netherlands, Spain and New Zealand.

Financial markets expect the Reserve Bank board to cut interest rates by as much as 1.25 percentage points when it meets on Tuesday.

The Treasurer, Wayne Swan, welcomed the OECD's support for government measures to increase spending and for central banks to cut interest rates.

"The OECD has confirmed what the Government has said repeatedly - we are facing extremely difficult global conditions but Australia is better placed than most countries to weather the storm," Mr Swan said.

Meanwhile, sharemarkets surged after the US Treasury announced a plan to buy a $30 billion stake in Citigroup and guarantee $477 billion worth of the bank's bad assets.