In a report released Wednesday, the Organization for Economic Co-operation and Development upgraded its forecast for global economic output this year, noting that while the decline was still “unprecedented in recent history”, the outlook has improved slightly since June.
But the agency, which represents the world’s largest economies, warned that the overall numbers mask major discrepancies. While it significantly increased its 2020 forecasts for the US and China and slightly raised the outlook for Europe, the OECD lowered its expectations for developing countries such as Mexico, Argentina, India, South Africa, Indonesia and Saudi Arabia.
OECD economists said the downgrades reflected “the long-term spread of the virus, high levels of poverty and informality and stricter containment measures over a longer period.”
The OECD noted the earlier timing of the country’s outbreak and its ability to quickly bring it under control, as well as policies that paved the way for a rapid jump in activity, particularly pointing to strong infrastructure investment.
Meanwhile, South Africa’s economy could shrink by 11.5% this year, according to the OECD. The economies of Mexico and India are both on track with a decline of 10.2%. It’s worse than forecast developed economies with the exception of Italy, which is due to shrinking 10.5% after it was hit hard by the virus.
‘Uncertainty remains high’
The OECD warned that its prospects are far from set, and much depends on the trajectory of Covid-19 infections and ongoing support from decision-makers. It added that the global recovery “lost some momentum in the summer months” after an initial outbreak of activity.
“A recovery is now under way after easing austerity measures and reopening businesses, but uncertainty remains high and confidence remains fragile,” the agency said in its report.
Some of its estimates are also dependent on political assumptions that may not come true.
The agency expects the UK economy to shrink by 10.1% this year, a slight improvement over the last estimate.
The OECD also trusts U.S. lawmakers to approve another $ 1.5 trillion stimulus package this fall, even though negotiations have reached a dead end. It may be more difficult to reach an agreement as the November elections approach.
The group’s forecasts for the global recovery in 2021 are slightly lower than they were in June. OECD economists made it clear that they see a long way ahead.
“In most economies, production levels by the end of 2021 are expected to remain below those by the end of 2019 and significantly weaker than expected before the pandemic, underscoring the risk of long-term costs from the pandemic,” the report said.