The Organization for Economic Cooperation and Development believes the global economy will bounce back from the coronavirus pandemic, and grow by as much as 4.2% in 2021.
This is the same rate the economy is expected to decline this year.
At a news conference in Paris on Tuesday, OECD Secretary General Angel Gurria said while the outlook appeared “vigorous” almost all countries will have smaller economies at the end of 2021 than at the end of 2019.
Gurira said recent vaccine announcements had provided much-needed hope.
But he noted that many countries are still fighting a resurgence of the virus, saying, “And the re-imposition of containment measures is denting the economic rebound that had begun.”
Global GDP in the fourth quarter of 2020 is expected to be 3% below the same quarter last year, while for the Euro area and the US the decline is projected to be 7.3% and 3.2%, respectively.
The organisation had earlier reported that global trade had rebounded sharply in the third quarter with merchandise exports up 21.6% and imports up 18.1%.
However, international trade remains around 5% below its pre-pandemic level in the final quarter of 2019 and close to 10% below the most recent high seen in the third quarter of 2018.
Activity will continue to be restricted with social distancing and partly closed borders most likely remaining through the first half of 2021, the OECD Economic Outlook report said.
The OECD warned that the recovery will be uneven across countries and sectors and could lead to lasting changes in the world economy. Countries with solid coronavirus testing, tracking and isolation programmes, that are able to effectively distribute vaccines, should perform comparatively well.
But the organisation said policymakers will need to maintain fiscal and public health support, adding that the 2020 economic damage would have been much worse, had it not been for massive government support to help people and businesses.
The OECD predicts the 2021 rebound in global gross domestic product will be led by a strong recovery in China, which, along with Korea, has handled the pandemic better than most countries.
In contrast, the US and Europe are expected to contribute less to the recovery than their weight in the global economy.
Among the world’s major economies, only Argentina is predicted to do worse than the UK. The OECD expects that by the end of 2021, the UK economy will be 6% smaller than before the coronavirus pandemic.
Failure by the UK to conclude a trade deal with the EU would “entail serious additional economic disturbances in the short term and have a strongly negative effect on trade, productivity and jobs in the longer term”, the report said.
Once again, the Economic Outlook provided upside and downside risk scenarios to its main projections.
The release of pent-up demand and accumulated savings may reinforce a rebound if vaccines become available faster and more widely, boosting global growth to around 5% in 2021.
But confidence may be hit if problems arise with the distribution or unexpected secondary effects of the vaccines and if the lessons from the first two waves of the pandemic are not learnt. In this scenario, global growth in 2021 would be lowered by 2.75 percentage points.
OECD chief economist Laurence Boone said, “With the prospect of vaccines and better virus management, the picture for the global economy is looking brighter, but the situation remains precarious, especially for the low-skilled and for struggling small businesses.”
She said, “With rock-bottom interest rates expected to persist, governments can and need to sustain the support to prevent long-term scarring effects of this crisis.”
The Economic Outlook noted how the crisis has worsened inequality, hitting the most vulnerable in society the hardest. High levels of unemployment, particularly among the low-skilled and young, risk persisting for years.
The report also warned that corporate debt is reaching levels last seen in the global financial crisis of a decade ago, raising the risk of insolvencies but also cutting firms’ capacity to invest, which would weaken a broader economic recovery.