London, England – The impact on many of the world’s top economists due to Corona virus may not be as bad as economists expected just a few months ago.
Organisation for Economic Cooperation and Development updated its forecast for global economic output this year in a report published on Wednesday. In addition to this they have noted that while declines were still “unprecedented in recent history,” the outlook has improved slightly since June.
This agency based in Paris said that it is expected that the world economy will shrink by 4.5% in 2020 prior to expanding by 5% in 2021. Their previous assumption was that the global economy would contract by 6% this year and grow 5.2% next year.
But the agency representing the world’s biggest economies, warned that headline figures mask major inconsistencies. The OECD lowers its expectations for developing countries such as Mexico, Argentina, India, South Africa, Indonesia and Saudi Arabia whereas for the United States and China it significantly boosted its 2020 forecasts. They also slightly raised the outlook for Europe.
OECD economists said the downgrades reflected “the prolonged spread of the virus, high levels of poverty and informality, and stricter confinement measures for an extended period.”
With its economy growing 1.8% compared to a 3.8% contraction in the United States and a 7.9% decline among the 19 countries that use the euro, China is the only G20 country for which the output is projected to rise in 2020. Beijing reported Tuesday that the first time sales have increased this year was when retail sales were higher in August than they had been the previous year.
The OECD noted the earlier timing of the country’s outbreak and its ability to swiftly bring it under control, as well as policies that paved the way for a rapid bounce back in activity, pointing to strong infrastructure investment in particular.
According to OECD, South Africa’s economy could shrink by 11.5% this year. In addition to this Mexico and India’s economies are both on track for a 10.2% contraction. That’s much worse than the forecasts for developed economies with the exception of Italy, on which the virus had a huge impact and is expected to shrink 10.5%
‘Uncertainty remains high’
The OECD warned that its outlook is yet to be set based on the trajectory of Covid-19 infections and ongoing support from policymakers. Furthermore, they added that the global recovery “lost some momentum over the summer months” after an initial burst of activity.
“A recovery is now under way following the easing of strict confinement measures and the reopening of businesses, but uncertainty remains high and confidence is still fragile,” the agency said in its report.
Some of its estimates are also contingent on immaterialised policy assumptions.
The OECD expects, for example, the United Kingdom to reach a “basic” free trade agreement for goods with the European Union. But talks could be crushed over a controversial bill introduced by Prime Minister Boris Johnson’s government, which would violate the terms of a previously agreed divorce agreement.
The agency expects the UK economy to shrink by 10.1% this year which is a slight improvement to its previous estimate.
The OECD also expects US lawmakers to approve another stimulus package worth up to $1.5 trillion this fall, though negotiations have reached an impasse. Reaching an agreement may prove to be difficult as the November election approaches.
The group’s predictions for the global recovery in 2021 are slightly lower compared to those of June. OECD economists made clear that they see a long road ahead.
“In most economies, the level of output at the end of 2021 is projected to remain below that of 2019, and considerably weaker than expected -prior to the pandemic, highlighting the risk of long-lasting costs from the pandemic,” the report said.