Global economy could recover in 2021 if stimulus kept up - OECD

The global economy could return to growth next year as better outlooks from the US and China combined with a “massive response” to the Covid-19 pandemic from other nations lessened GDP contraction, the OECD said on Wednesday.

In its quarterly outlook, the Organisation for Economic Cooperation and Development said the world economy would contract by 4.5% this year, up from the 6% forecast in June.

“If the threat from COVID-19 fades more quickly than expected, improved business and consumer confidence could boost global activity sharply in 2021,” it said.

However, the OECD also warned 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”.

The global economy was forecast to return to growth next year by expanding 5%, from a June forecast of 5.2%, if the virus was kept from spreading out of control.

Recovery would also be uneven across countries, the OECD said, adding that its analysis “masks considerable differences across countries” with upward revisions to the US, China and Europe offset by weaker outcomes in Mexico, India and South Africa.

The group’s chief economist Laurence Boone also urged governments to avoid the mistake of tightening fiscal policy too quickly, as happened after the last financial crisis in 2008.

“Without continued government support, bankruptcies and unemployment could rise faster than warranted and take a toll on people’s livelihoods for years to come,” she said.

“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 OECD said fiscal policy support needs to be pursued in 2021 and governments must aim “to avoid premature budgetary tightening at a time when economies are still fragile”.

China was forecast to be the only country in the G20 to grow this year, up 1.8% from June’s forecast of 2.6% contraction. Contraction of the US economy was now ,marked at 3.8% compared with -7.3%.