The Organization for Economic Cooperation and Development (OECD) has decided to improve its forecasts and now estimates that the World GDP will contract by 4.5% in 2020, compared to the 6% that it anticipated in its most optimistic scenario previously, according to the September update of its biannual report ‘Economic Outlook’, published this Wednesday.
Despite the improvement in the forecasts, the entity chaired by the Mexican Ángel Gurría has warned that any forecast is surrounded by a lot of uncertainty and confidence “is still fragile.” In addition, if the 4.5% drop in world GDP is confirmed, it would still be a bad figure, since it has no modern precedents.
Compared to 2021, the OECD has indicated that the world economy will expand by 5%, which means two tenths less than in the scenario foreseen in June, when he made his previous economic forecasts.
“The magnitude and duration of the pandemic ‘shock’ differed among the major economies, but all experienced a marked contraction in activity due to the necessary containment measures being implemented,” the OECD stated.
The agency explained that world trade “collapsed”, with a fall of 15% in the first half of the year, and that labor markets were severely disrupted by the reduction in hours worked, the loss of jobs and the forced closure of businesses.
“Without the rapid and effective political support launched in all economies to cushion the impact of the ‘shock’ on household and business income, the contraction in activity and employment would have been substantially greater,” warned the OECD.
With respect to the euro area as a whole, the OECD estimates that its GDP will contract by 7.9% in 2020, compared to the 9.1% drop it forecast in June. The recovery in 2021, however, will be 1.4 points worse than expected, with GDP growth of 5.1%.
The OECD only breaks down the forecasts for the three main European economies. In the case of Germany, its GDP will fall by 5.4% in 2020 and will grow by 4.6% in 2021. This is a revision of 1.2 points up and down, respectively.
For its part, France will experience a ‘shock’ of 9.5% of GDP this year, compared to 11.4% estimated in June. By 2021, the OECD estimates that it will grow by 5.8%, which is equivalent to 1.8 points less. Italy, on the other hand, will fall by 10.5%, compared to the previous 11.3%, and will rebound by 5.4% in 2021, 2.3 points less.
With respect to the rest of the major world economies, the United States will contract 3.8% in 2020, compared to the 7.3% drop previously estimated, while in 2021 it will grow by 4%, just one tenth less. China will grow by 1.8% in 2020, compared to the estimated fall in June of 2.6%, and in 2021 it will rise by 8%, more than an additional point.
The UK will be one of the most affected developed countries, as its GDP will fall by 10.1% this year. In June, the estimated decrease was 11.5%. For 2021, the OECD has revised down its growth estimate by 1.4 points, to 7.6%. Likewise, while Japan will fall by 5.8% this year, an improvement of two tenths compared to June, its economy will be one of the least growing in 2021, with a rise of 1.5%, six tenths less than previously forecast .
The club of countries has stated that growth prospects depend on “many factors”, including the duration of new Covid-19 outbreaks, the degree of effectiveness of containment measures, the time until the vaccine is available and to what extent monetary and fiscal measures serve to support demand.
The OECD thus assumes that new virus outbreaks will occur in all economies in the coming months, so containment measures will have to continue to be applied. However, the entity estimates that the measures will be focused on specific populations and places, restricting activity and movement locally, instead of applying massive confinements like the first half of the year.