The Organisation for Economic Cooperation and Development on Wednesday presented an improved economic forecast compared to its June outlook, projecting a global GDP fall of 4.5% this year followed by 5% growth in 2021.
The organisation credited the better-than-expected performance of China and the US in the first half of this year, as well as government stimulus measures in much of the rest of the world, for the boosted outlook.
After the unprecedented economic collapse in the first half of the year, the global economy swiftly recovered in response to the easing of containment measures.
However, the OECD warned that since then the recovery has lost some momentum and new restrictions to prevent the resurgence of COVID-19 are likely to have slowed growth.
Uncertainty also remains high as the recovery varies significantly between countries and industry sectors. And output in many countries at the end of 2021 will still be below the levels seen at the end of 2019.
The report warns that many businesses in the service sectors that are most affected by shutdowns, such as transport, entertainment and leisure, could become insolvent if demand does not recover and trigger large-scale job losses.
Rising unemployment was also likely to increase the risk of poverty and deprivation for millions of informal workers, particularly in emerging-market economies.
In June, the OECD presented two scenarios given that it is not known at what pace the virus will continue to spread or when a vaccine will be found. This uncertainty remains, and is likely to continue for at least another 12 to 18 months.
In its latest forecast, the Paris-based organisation therefore continues to present two alternative scenarios. The upside scenario with more resilient and sustainable growth would depend on fewer COVID-19 outbreaks, the faster discovery and deployment of a vaccine, higher consumer and business confidence, and extensive government support to maintain jobs and raise demand.
In contrast, a stronger resurgence of the virus, or more stringent lockdowns, could cut two to three percentage points from global growth in 2021, with even higher unemployment and a prolonged period of weak investment, the OECD said.
If at the end of 2021, global economic output returns to the level of 2019, as predicted by the baseline forecast, the world will have lost $7 trillion in economic activity, or the equivalent of the economic output of France and Germany.
So far, the OECD said, the rapid reaction of policymakers in many countries to buffer the initial impact on incomes and jobs managed to prevent an even larger drop in output.
Presenting the Interim Economic Outlook, covering G20 economies, OECD chief economist Laurence Boone said the world is facing an acute health crisis and the most dramatic economic slowdown since the Second World War. “The end is not yet in sight, but there is still much policymakers can do to help build confidence.”
She said it is important that governments avoid the mistake of tightening fiscal policy too quickly, as happened after the last financial crisis.
“Without continued government support, bankruptcies and unemployment could rise faster than warranted and take a toll on people’s livelihoods for years to come,” she warned.
“Policymakers have the opportunity of a lifetime to implement truly sustainable recovery plans that reboot the economy and generate investment in the digital upgrades much needed by small- and medium-sized companies, as well as in green infrastructure, transport and housing to build back a better and greener economy,” Boone added.
The Interim Outlook said continued state support needed to be increasingly tied to broader environmental, economic and social objectives. Support should also be better targeted to where it is needed most to improve the prospects for the unemployed, the low-skilled and young people.
The report acknowledged that a balance needed to be struck between providing immediate support to strengthen the recovery while encouraging workers and businesses in hard-hit sectors to move into more-promising activities.
Support also needed to be focussed on viable businesses, moving away from debt into equity, to help them to invest in digitalisation, and in the products and services society will need in the decades ahead.
In addition, a much stronger commitment needed to be made to address climate change in recovery plans, and to support greater investment in green energy, infrastructure, transport and housing. At the same time, and with the virus continuing to spread, investing in health professionals and systems must remain a priority, the OECD said.
The organisation maintains that global cooperation and coordination are essential, as more funding and multilateral efforts will be needed to ensure that affordable vaccines and treatments will be deployed rapidly in all countries when available.