In a report released Wednesday, the Organization for Economic Cooperation and Development updated its forecast for global economic production this year, noting that while the decline is still “unprecedented in recent history,” the forecast has improved slightly since June.
The Paris agency said it now expects the global economy to contract 4.5% in 2020 and then grow 5% in 2021. Earlier, the OECD stated that, in its opinion, the world economy
contract for 6% this year and will grow by 5.2% next year.
But the agency, which represents the world’s largest economies, warned that serious divergences were hidden behind the headlines. While the OECD significantly raised its forecasts for 2020 for the United States and China and slightly improved the outlook for Europe, the OECD lowered its expectations for developing countries such as Mexico, Argentina, India, South Africa, Indonesia and Saudi Arabia.
OECD economists said the downgrade reflects “a prolonged spread of the virus, high levels of poverty and informality, and stricter containment measures over the long term.”
China is the only country in the G20 with production projected to grow in 2020, with its economy growing 1.8%, compared to a 3.8% contraction in the US and a 7.9% decline among 19 countries using the euro. Beijing reported on Tuesday that retail sales were
higher in August than last year – sales rose for the first time in 2020.
The OECD noted the earlier timing of the outbreak in the country and its ability to quickly bring it under control, as well as policies that paved the way for a rapid recovery in activity, citing, in particular, significant investment in infrastructure.
Meanwhile, according to the OECD, this year the South African economy may contract by 11.5%. The economies of Mexico and India are on track to contract 10.2%. This is worse than forecasts for in developed countries, with the exception of Italy, which, due to the strong impact of the virus, will decrease by 10.5%.
“Uncertainty Remains High”
The OECD has warned that its prospects are far from final, and much depends on the trajectory of the Covid-19 infection and the continued support from politicians. He added that the global economic recovery “lost some momentum in the summer months” after an initial surge in activity.
“There is now a recovery from the relaxation of stringent restrictions and resumption of activities, but uncertainty remains high and confidence is still fragile,” the agency said in a report.
Some of his assessments also depend on political assumptions that may not be true.
The OECD assumes, for example, that the UK will reach a “core” free trade agreement with the European Union. But negotiations
can be crushed on a controversial bill, introduced by the government of Prime Minister Boris Johnson, which would violate the terms of a previously concluded divorce agreement.
The agency expects the UK economy to contract 10.1% this year, slightly better than its latest estimate.
The OECD also expects US lawmakers to approve another stimulus package worth up to $ 1.5 trillion this fall, although negotiations have stalled. As the November elections approach, reaching agreement may be more difficult.
The group’s forecasts for a global economic recovery in 2021 are slightly lower than in June. OECD economists have made it clear that they see a long way ahead.
“In most countries, production at the end of 2021 is projected to remain lower than at the end of 2019 and significantly lower than projected before the pandemic, highlighting the risk of long-term costs associated with a pandemic,” the report said.
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