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 are likely to have slowed growth, says the OECD’s Interim Economic Outlook.
The new report projects global GDP to fall by 4½ per cent this year, before growing by 5% 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. All G20 countries with the exception of China will have suffered recession in 2020.
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.
Presenting the Interim Economic Outlook, covering G20 economies, OECD Chief Economist Laurence Boone said:
“It is important that governments avoid the mistake of tightening fiscal policy too quickly, as happened after the last financial crisis. Without continued government support, bankruptcies and unemployment could rise faster than warranted and take a toll on people’s livelihoods for years to come."
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.
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.
Continued state support needs to be increasingly conditioned on broader environmental, economic and social objectives. Better targeting of support to where it is needed most will improve prospects, particularly for the unemployed and the low skilled – groups who too often miss out on training – and for youths.
The report acknowledges that a balance needs to be struck between providing immediate support to strengthen the recovery while encouraging workers and businesses in hard-hit sectors to move into more promising activities.
Support also needs to be focused on viable businesses, moving away from debt into equity, to help them to invest in the products and services our society will need in the decades ahead.