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With the COVID-19 pandemic continuing to threaten jobs, businesses
and the health and well-being of millions amid exceptional uncertainty,
building confidence will be crucial to ensure that economies recover and
adapt, says the OECD’s Interim Economic Outlook.
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 to tackle the resurgence of the virus are
likely to have slowed growth, the report says.
Uncertainty remains high and the strength of the recovery varies
markedly between countries and between business sectors. Prospects for
an inclusive, resilient and sustainable economic growth will depend on a
range of factors including the likelihood of new outbreaks of the
virus, how well individuals observe health measures and restrictions,
consumer and business confidence, and the extent to which government
support to maintain jobs and help businesses succeeds in boosting
demand.
The Interim Economic Outlook 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. 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.
If
the threat from COVID-19 fades more quickly than expected, improved
business and consumer confidence could boost global activity sharply in
2021. But a stronger resurgence of the virus, or more stringent
lockdowns could cut 2-3 percentage points from global growth in 2021,
with even higher unemployment and a prolonged period of weak investment.
Presenting the Interim Economic Outlook, covering G20 economies, OECD
Chief Economist Laurence Boone said: “The world is facing an acute
health crisis and the most dramatic economic slowdown since the Second
World War. The end is not yet in sight but there is still much
policymakers can do to help build confidence.”
She added: “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. Policymakers have the
opportunity of a lifetime to implement truly sustainable recovery plans
that reboot the economy and generate investment in the digital upgrades
much needed by small and medium-sized companies, as well as in green
infrastructure, transport and housing to build back a better and greener
economy.”
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 rapid reaction of policymakers in many countries to buffer the
initial blow to incomes and jobs prevented an even larger drop in
output. 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. Such measures should be flexible enough to adapt to
changing conditions and become more targeted.
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 focussed on viable businesses, moving away
from debt into equity, to help them to invest in digitalisation, and in
the products and services our society will need in the decades ahead.
Far stronger commitment needs to be devoted to address climate change in
recovery plans, in particular conditioning support on greater
investment in green energy, infrastructure, transport and housing.
At the same time, and with the virus continuing to spread, investing
in health professionals and systems must remain a priority. The OECD
says global co-operation and co-ordination are essential, as greater
funding and multilateral efforts will be needed to ensure that
affordable vaccines and treatments will be deployed rapidly in all
countries when available.
The release of the Interim Economic Outlook follows an OECD
Ministerial Roundtable at which Secretary-General Angel Gurría called
for countries to go further in greening the stimulus packages they have
announced to tackle the impact of the COVID-19 crisis in order to drive
sustainable, inclusive, resilient economic growth and improve
well-being.
“Climate change and biodiversity loss are the next crises around the
corner and we are running out of time to tackle them,” he said. “Green
recovery measures are a win-win option as they can improve environmental
outcomes while boosting economic activity and enhancing well-being for
all.”