The global economic slumpwon’t be as sharp as previously feared this year, though the recovery is losing pace and will need support from governments and central banks for some time yet, according to the OECD.
The world economy will shrink 4.5% this year, less than the 6% forecast in June, the Paris-based institution said on Wednesday, upgrading its outlook in response to rebounds in activity since lockdowns ended. There were big revisions for the U.S. and the euro area, as well as China, which is now forecast to grow modestly, the only Group of 20 country with such a prospect.
The better view reflects the strong economic pickup in recent months and the vast injection of public resources. The U.S. unemployment rate fell more than forecast in August, while China this week reported positive retail and industrial production data.
While that initially strong pickup means the 2020 number looks a little less grim, the pace of the recovery is now fading, and output in many countries will still be below its pre-crisis level at the end of 2021. There’s also a risk of long-lasting damage to economies, as well as bankruptcies and job losses.
Amid such dangers, the OECD said governments and central banks will need to continue to provide support into 2021, after huge efforts this year that have bloated balance sheets and stretched fiscal budgets.
“The problem is that this V-shaped recovery is not going to happen,” OECD Secretary General Angel Gurria said on Bloomberg Television. “What we are saying is number one, don’t take away the support, don’t take away the relief, too fast.”