Uncertainty high, economic recovery strength varies: OECD
With the novel coronavirus pandemic continuing to threaten jobs, businesses and the health and well-being of millions of people amid exceptional uncertainty, building confidence will be crucial to ensure that economies recover and adapt, says the Interim Economic Outlook by the Organisation for Economic Cooperation and Development (OECD). Uncertainty remains high and the strength of the recovery varies markedly among countries and business sectors, it says.
The Outlook projects global gross domestic product (GDP) to fall by 4.5 per cent this year, before growing by 5 per cent in 2021. The forecasts are less negative than those in OECD’s June Economic Outlook, due primarily to better than expected outcomes for China and the United States in the first half of this year and a response by governments on a massive scale.
However, output in many countries at the end of 2021 will still be below the levels at the end of 2019, and well below what was projected prior to the pandemic.
After an unprecedented collapse in the first half of the year, economic output recovered swiftly following the easing of containment measures and the initial re-opening of businesses, but the pace of recovery has lost some momentum more recently. New restrictions being imposed in some countries to tackle the resurgence of the virus are likely to have slowed growth, the report says.
Prospects for an inclusive, resilient and sustainable economic growth will depend on a range of factors including the likelihood of new outbreaks of the virus, how well individuals observe health measures and restrictions, consumer and business confidence, and the extent to which government support to maintain jobs and help businesses succeeds in boosting demand, it says.
If the threat from COVID-19 fades more quickly than expected, improved business and consumer confidence could boost global activity sharply in 2021. But a stronger resurgence of the virus, or more stringent lockdowns could cut 2-3 percentage points from global growth in 2021, with even higher unemployment and a prolonged period of weak investment, says the report.
The report warns that many businesses in the service sectors most affected by shutdowns, such as transport, entertainment and leisure, could become insolvent if demand does not recover, triggering large-scale job losses. Rising unemployment is also likely to worsen the risk of poverty and deprivation for millions of informal workers, particularly in emerging-market economies, according to an OECD press release.
The rapid reaction of policymakers in many countries to buffer the initial blow to incomes and jobs prevented an even larger drop in output. The Interim Outlook says it is essential for governments not to repeat mistakes of past recessions but to continue to provide fiscal, financial and other policy support at the current stage of the recovery and for 2021. Such measures should be flexible enough to adapt to changing conditions and become more targeted.
Continued state support needs to be increasingly conditioned on broader environmental, economic and social objectives. Support also needs 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 our society will need in the decades ahead. Far stronger commitment needs to be devoted to address climate change in recovery plans, in particular conditioning support on greater investment in green energy, infrastructure, transport and housing.
The release of the Interim Economic Outlook followed an OECD Ministerial Roundtable at which secretary general Angel Gurría called for countries to go further in greening the stimulus packages they have announced to tackle the impact of the COVID-19 crisis to drive sustainable, inclusive, resilient economic growth and improve well-being.