On Wednesday, the Organization for Economic Cooperation and Development (OECD) upgraded its forecast for global economic output in 2020. According to OECD, the outlook improved slightly since June. It is no secret that the biggest economies in the world suffered heavy losses due to the coronavirus pandemic. However, the economic impact may not be as bad as economists feared several months ago.
It is worth noting that, the agency now expects the world economy to shrink by 4.5% in 2020. In the past, the OECD expected the global economy to shrink by 6% in 2020. Interestingly, the Paris-based agency expects the global economy to expand by 5% in 2021, compared to the previous forecast this number fell from 5.2% to 5%.
Nevertheless, the agency warned that headline figures mask major discrepancies. The agency significantly boosted its 2020 forecasts for the U.S. and China. Also, the OECD slightly raised the outlook for Europe. Nevertheless, the OECD lowered its expectations for developing countries such as Mexico, Argentina, India, South Africa, Saudi Arabia, and Indonesia.
According to the economists who work for the agency, the downgrades reflected a high level of poverty as well as the prolonged spread of the virus. Also, they mentioned the impact of stricter confinement measures for an extended period.
Interestingly, China remains the only G20 country for which output is projected to rise in 2020. The agency expects the country’s economy to grow by 1.8% in 2020. The OECD expects the U.S. economy to contract by 3.8%. According to the Paris-based agency, expects the economies of the 19 countries that use the euro to decline by 7.9%.
China was able to bring the pandemic under the control. Moreover, the country implemented policies that helped to boost the economy.
The global economy and main findings
According to the OECD, South Africa’s economy could shrink by 11.5% in 2020. Moreover, Mexico and India are both on track for a 10.2% contraction. Interestingly, that’s worse than the forecasts for developed countries, the only exception is Italy, which is due to shrink by 10.5%. The country suffered losses due to the virus.
People should take into account that, OECD’s outlook is far from set, as there are several factors that may influence its outlook. For example, the trajectory of coronavirus infections as well as ongoing support from policymakers. Moreover, global recovery lost some momentum over the summer months. Hopefully, recovery is now underway, but uncertainty remains high and confidence is still fragile.
Importantly, the Paris-based agency expects the U.K.’s economy to shrink by 10.1% in 2020. This result is a slight over its last estimate.
It is worth noting that, some of its estimates are also contingent on policy assumptions that may not materialize. For instance, the OECD that the U.K. will be able to reach a basic free trade agreement for goods with the European Union. However, the U.K. and the European Union may fail to reach an agreement.
Moreover, the agency is also counting on U.S. lawmakers to approve another stimulus package with up to $1.5 trillion this fall. However, reaching an agreement may be more difficult due to the November election. Governments around the world should take measures to support companies and people.
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