The global economy won't shrink as much as anticipated this year, the OECD has said. Fiscal and monetary policy helped dodge a worst-case scenario, but economic recovery from the pandemic could take longer than thought.
The hit to the global economy anticipated due to fallout from the coronavirus pandemic will not be as drastic as initially expected, the Organization for Economic Co-operation and Development (OECD) said Wednesday, though recovery will also be milder.
Countries' efforts to counter the economic damage caused by national lockdowns put in place to slow the spread of the virus had succeeded in softening the financial blow to companies and individuals, the Paris-based policy forum said.
The latest forecast expects that global economic output will contract by 4.5% in 2020, less than the previous June forecast of 6.0%.
The forecast assumes that local outbreaks will be targeted with local measures instead of nationwide lockdowns, the OECD said.
Global trade plummeted over 15% in the first half of 2020 and labor markets were thrown into turmoil when the coronavirus pandemic forced businesses around the globe to close their doors, grinding production lines to a halt and reducing working hours and jobs.
"Without the prompt and effective policy support introduced in all economies to cushion the impact of the shock on household incomes and companies, the contraction in output and employment would have been substantially larger," the OECD said.
But a recovery in 2021 is also expected to be less robust than earlier estimates.
The OECD said it now expects global economic output to grow by 5.0% in 2021, down from its previous forecast of 5.2%.
"After the initial bounce-back in many activities following the easing of confinement measures, there are some signs from high-frequency indicators and business surveys that the pace of the global recovery has lost momentum since June, particularly in many advanced economies," it said.
"The economic outlook remains exceptionally uncertain, with the COVID-19 pandemic continuing to exert a substantial toll on economies and societies," the OECD stressed.
Global economic output in the second quarter of 2020 was over 10% lower than the same period a year before, "an unprecedented sudden shock in modern times."
According to the new forecasts, the eurozone economy is expected to shrink by 7.9% this year, with Germany, the largest economy in the single currency area, set to contract by 5.4%
The US, the world's largest economy, is pegged to see -3.8% growth, an improvement from a previous forecast of -7.3%.
Only China's economy is expected to see positive growth this year, with analysts now predicting growth of 1.8%, up from an expected contraction of 2.6%.
Adjustments to forecasts would depend on factors such as new outbreaks, restriction measures, the deployment of vaccines, and the effects of fiscal and monetary policy measures, the OECD said.
kp/sms (AFP, Reuters)