OECD moderates economic forecast, warns of uncertainty

The OECD today moderated its forecast for global economic contraction this year, but warned of considerable uncertainty to the outlook and said that the Covid-19 pandemic will have long-lasting costs.

In its Interim Economic Outlook, the group said the world gross domestic product (GDP) will fall by 4.5pc this year, and then rise by 5pc in 2021, with most economies ending next year smaller than they were at the close of 2019.

The overall drop is less than in either of the two scenarios the OECD presented in June, one in which Covid-19 is brought under control, and one in which lockdown measures are renewed. The brighter outlook arises from "prompt and effective" government responses, it said. The new forecast assumes that sporadic local Covid-19 outbreaks will continue, but that these will be tackled locally rather than by a return of national lockdowns.

The OECD highlighted considerable differences across countries. It made sharp increases to GDP projections for major commodity consuming countries China and the US. The former's economy will now grow by 1.8pc this year — the only economy forecast to grow — compared with the OECD's March forecast of a 2.6pc contraction. The US economy will shrink by 3.8pc this year, which compares with a prior forecast of a 7.3pc contraction. The OECD moved its projection for the eurozone's economy to a contraction of 7.9pc from its previous forecast for a 9.1pc fall. The forecast for major crude buyer India, where lockdown measures were especially restrictive, is for the GDP to shrink by more than 10pc in its current April-March fiscal year.

As for 2021, the OECD sees all regions returning to growth, with the US at 7.6pc, China at 8pc and India — again in its fiscal year — at 10.7pc.

"But a stronger resurgence of the virus, or more stringent lockdowns could cut 2-3 percentage points from global growth in 2021," the OECD said today. "Without continued government support, bankruptcies and unemployment could rise faster than warranted and take a toll on people's livelihoods for years to come. Policymakers have the opportunity of a lifetime to implement truly sustainable recovery plans… in green infrastructure, transport and housing to build back a better and greener economy."

By Ben Winkley