AUSTRALIA will avoid a recession next year, one of only a handful of developed countries whose economy will continue to grow, a leading global think tank says.

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 0.4 per cent 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.