01/12/2020 - Continued fiscal support and public health action needed to make hope of recovery a reality
The prospect of a number of COVID-19 vaccines becoming widely available next year has lifted hopes for a faster recovery, but policymakers will need to retain both public health and fiscal support while acting decisively for the momentum to pick up, according to the OECD’s latest Economic Outlook.
The OECD warned in its June Economic Outlook that a second wave of infections at the end of the year could knock an initial rebound off course. Europe and North America are now bearing the brunt of a resurgence of the virus, stalling the recovery. Global GDP in the fourth quarter of 2020 is expected to be 3% below the same quarter last year, while for the Euro area and the US the decline is projected to be 7.3% and 3.2%, respectively.
Activity will continue to be restricted with social distancing and partly closed borders most likely remaining through the first half of 2021, the Economic Outlook says. The global economy is expected to gain momentum only gradually, as vaccines are deployed throughout OECD countries in the course of 2021. After falling sharply by 4.2% this year, world GDP is projected to rise by 4.2% in 2021, with China expected to account for over a third of that growth.
The recovery will be uneven across countries and sectors and could lead to lasting changes in the world economy. Countries with effective testing, tracking and isolation programmes and where effective vaccinations can be distributed rapidly should perform relatively well, but a high degree of uncertainty persists.
The Outlook provides both upside and downside risks to its main projections. The release of pent-up demand and accumulated savings may reinforce a rebound if vaccines become available faster and more widely, boosting global growth to around 5% in 2021. But confidence may be hit if problems arise with the distribution or unexpected secondary effects of the vaccines and if the lessons from the first two waves of the pandemic are not learnt. In this scenario, global growth in 2021 would be lowered by 2¾ percentage points.