The consequences of the pandemic for the economy will not be as severe as previously predicted – Financial News – Financenet

The Organization for Economic Co-operation and Development (OECD) report says that the situation in the world economy is not as bad as previously forecast. Although the economic downturn has been very strong in the first half of the year, the situation has been slowly but surely improving since June.

It is noted that the OECD forecasts an economic downturn of 4.5% this year, but growth of 5% next year. Previous forecasts suggest that the decline could reach 6% this year and 5.2% next year.

The OECD, which represents the world‘s largest economy, warned that there were a number of major discrepancies in the forecasts. Despite significant improvements in the 2020 forecasts for the US and China, as well as a slight increase in the European outlook, the OECD lowered its forecasts for developing countries such as Mexico, Argentina, India, South Africa, Indonesia and Saudi Arabia.

OECD economists said the deteriorating outlook was linked to “persistent viral spreads, very high levels of poverty and inequality, as well as various restrictions over a longer period of time”.

China is the only G20 country that is projected to grow. China‘s economy is forecast to grow by 1.8% this year. In turn, the US economy will experience a contraction of 3.8%, while the eurozone economies will decline by 7.9%. Beijing on Tuesday reported that trade results in August were even better than in the same period last year, so for the first time this year, this year’s performance surpassed last year’s.

The OECD noted that China has been able to quickly and effectively take control of the spread of the virus, and that policies have been implemented that have paved the way for a rapid return to economic activity, with particular emphasis on strong investment in infrastructure.

The South African economy could do worse, shrinking by 11.5% this year, the OECD reports. Both the Mexican and Indian economies have shrunk by 10.2%.

Uncertainty remains high

The OECD has warned that no further prospects can be identified, and that much depends on the trajectory of Covid-19 and the further action of policy makers. The global economic recovery has lost some momentum in the summer.

“Recovery is now taking place following the easing of austerity measures and the resumption of business activity, but uncertainty remains high and confidence remains fragile,” the OECD report said.

Some of the OECD estimates also depend on assumptions that are unlikely to materialize. The OECD assumes, for example, that Britain will conclude a “basic” free trade agreement with the European Union. However, the talks could unfold unpredictably following Boris Johnson’s statements, which show that Britain wants to change the terms of the previous agreement.

The UK economy is expected to contract by 10.1% this year, a slight improvement on the previous forecast. The OECD also hopes that US lawmakers will approve another $ 1.5 trillion economic stimulus package this fall, even though negotiations are currently at a standstill. As the November elections approach, it may be even more difficult to reach an agreement.

The OECD’s projections for global recovery in 2021 are slightly lower than in June. Economists point out that seeing ahead is still a long way to go before recovery.

“In most countries, economic performance is projected to remain below the end of 2019 at the end of 2021 and to be significantly weaker than projected before the pandemic. Consequently, the pandemic will have lasting consequences, “the report said.

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