FACTBOX: Non-G7 European countries economic outlook

COPENHAGEN (Reuters) - The Organisation for Economic Cooperation and Development on Tuesday forecast a fall in economic activity in smaller Western European nations over the next six months followed by a gradual recovery, with inflation easing considerably.

The following is a synopsis of the OECD's views of these economies in its twice-yearly economic outlook:

AUSTRIA

Growth has declined and the economy is set to contract in 2009 before recovering in 2010. Inflation is projected to ease as energy and food prices fall, economic slack increases and import prices decelerate.

The recent fiscal support measures will help limit the extent of the slowdown. Wage moderation will be important to avoid loss of competitiveness and second-round inflation pressures.

BELGIUM

Growth may remain below potential well into 2010, before rebounding on the back of easier monetary conditions, renewed growth in real incomes and a recovery in world trade.

As a result, unemployment will increase. Headline inflation should decline with the fall in energy and food prices, although core inflation should show more persistence.

DENMARK

After years of strong expansion, the construction boom is now over and falling house prices have put an end to debt-financed consumption growth.

Exports are likely to remain weak during 2009, leading businesses to cut back investment. Denmark enters the slowdown with severe capacity pressures and wages rising much faster than warranted by productivity growth. There is thus little need for a fiscal demand stimulus, especially since monetary conditions are set to ease along with those of the euro area.

FINLAND

Economic activity has slowed substantially due to a decline in investment. Output growth is projected to be subdued in 2009 before recovering during 2010. Unemployment is likely to drift up during 2009, but should stabilize in 2010.

Lower commodity prices and growing slack in the economy should bring down inflation from the current high rate.

The OECD said the government should address labor market mismatches to ensure further declines in structural unemployment.

GREECE

Economic activity has already weakened due to slowing domestic demand. Growth is expected to be subdued until mid-2009 but to firm gradually thereafter. Inflation is set to decline, but the persistent differential with the euro area is likely to remain.

The OECD said the government should better control public spending, reform its pension system and manage its health care system more efficiently.

ICELAND

After a long period of unbalanced growth, the Icelandic economy has entered a deep recession following the failure of its major banks. The economy is projected to shrink until early 2010 and unemployment to soar over the next two years.

Following a large depreciation of the currency, inflation is projected to spike higher, then fall back sharply once the exchange rate effects have passed through and the effects of substantial economic slack materialize.

IRELAND

A severe housing market correction has weakened the wider economy. Growth will recover in 2010 as the housing construction cycle bottoms out and the financial turmoil wanes.

The OECD said fiscal policy should support demand in the near term and then be adjusted once the recovery is underway to restore medium-term sustainability.

LUXEMBOURG

The international financial crisis is sharply reducing economic growth, initially in the financial sector, but subsequently in broader domestic demand. These effects should persist into 2010. Consequently, unemployment will rise further, while core inflation will fall slowly.

NETHERLANDS

Growth will turn negative in 2009 and a recovery will get under way in 2010 as stronger domestic demand is underpinned by easier monetary policy, real income growth is supported by lower inflation and exporters benefit from stronger world trade. A tight labor market will create some persistence in core inflation.

The OECD said the government should increase labor supply to ease wage pressures.

NORWAY

The economy is slowing toward its potential rate of growth. Domestic demand is moderating as a result of the increased cost of borrowing, falling house prices and declining terms of trade. Inflation remains higher than desirable and rising labor costs are undermining competitiveness.

The structural budget deficit is likely to exceed the 4 percent rule in 2009 due to adverse stock market effects on the value of the Government Pension Fund. The OECD said this was appropriate in current cyclical conditions, but that a fiscal stimulus should remain temporary in view of long-term budgetary challenges.

PORTUGAL

The economy is expected to contract until the second half of 2009, before recovering slowly in 2010. The unemployment rate is set to increase from its already high level. The sizeable negative output gap and lower food and energy prices will reduce inflation.

The fiscal position is likely to deteriorate in 2009 and 2010 as weaker economic conditions reduce revenue growth. Further fiscal consolidation and structural reforms are required in the medium term to strengthen economic performance, the OECD said.

SPAIN

Spain's economy is seen contracting in 2009 due to a drop in house building and consumer spending, and making a slow recovery in 2010 as financial turmoil recedes and world growth resumes.

The OECD cut its forecast for Spain's 2009 gross domestic product (GDP) to a contraction of 0.9 percent from an earlier prediction of 1.1 percent growth and lowered its estimate for 2008 GDP growth to 1.3 percent from 1.6 percent.

The OECD saw downside growth risks if credit constraints tightened further, either due to prolonged international financial turmoil or rising non-performing loans in the Spanish banking system.

SWEDEN

The Swedish economy stalled in the first half of 2008 and is expected to weaken in the near term. Consumption is projected to pick up late next year as the turmoil subsides and thanks to further income tax cuts and lower interest rates.

Export growth should gradually recover as Sweden's export markets expand again. With widening slack and lower commodity prices, the Riksbank has scope to continue to cut interest rates. The announced fiscal easing in 2009 will support demand and is structured to contribute, over time, to improving supply.

(Reporting by Gelu Sulugiuc; editing by Tony Austin)