Contraction in world economic output appears to be slowing and a recovery could begin at the end of this year, Organization for Economic Development and Cooperation (OECD) chief Angel Gurria said on Friday.

Indicators ranging from U.S. house sales to Chinese exports are beginning to pick up and the global economy is no longer in free fall, he said during a speech to an economic forum.

Asked if world output could begin to recover by the year-end Gurria said: I would say yes; the issue of recovery does not mean that we start to have very clear positive figures but that first the world economy stops contracting.

Upcoming forecasts for OECD member countries on June 25 will be the first since the beginning of the crisis not to show a serious deterioration in GDP, Gurria said.

The 30-nation organization currently expects member economies to contract 4.3 percent this year and 0.1 percent in 2010.

The United States will recover before Europe due to the larger economic stimulus package launched by Washington and the fact that the U.S. financial crisis is at a more advanced stage, Gurria said. Green shoots are appearing, he said.

AGENCIES LACK CREDIBILITY

Gurria played down the threat of credit rating cuts for large economies such as the United Kingdom and the United States. Standard & Poor's lowered its outlook on the UK to negative on Thursday, putting at risk Britain's AAA rating.

It seems absolutely inexplicable that they want to cut the rating of England and that there is talk they are going to cut the rating of the United States, Gurria said.

The United States, England, Greece, Spain and Ireland need to give a bit of help to the ratings agencies to see if they recover their prestige and credibility, to see what the rating agencies are worried about, he added.

Gurria said Standard & Poor's decision to strip Spain of its AAA rating earlier this year was insensitive and based on an evaluation of its economic policy, rather than its ability to repay debt.

Labor REFORM PUSH

Gurria advised governments to rein in fiscal spending and launch structural reforms, especially in countries like Spain which has the highest unemployment rate in the European Union and has launched one of the bloc's biggest economic stimulus plans.

Spain needs to reform its labor laws as they give too much protection to existing workers and are a deterrent to hiring at a time when the country has over 4 million unemployed, he said.

Gurria proposed lower salary levels for young workers to promote hiring, citing the example of Germany which has several different minimum wage levels based on skills and experience.

Gurria praised Bank of Spain Governor Miguel Angel Fernandez Ordonez for his labor reform proposals, after they were criticized as neo liberal by Socialist Prime Minister Jose Luis Rodriguez Zapatero.

You can't have this split world where you have workers inside the fence that don't want anyone else to enter, you have to think about those who want to get in, said Gurria, saying it was unacceptable unemployment among the young was up to six times higher in some OECD countries than for other workers.

(Reporting by Andrew Hay; editing by Stephen Nisbet)

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