France-based OECD cuts global growth forecast

The resurgence of the coronavirus pandemic has dramatically weakened the global recovery and it could get a lot worse if governments withdraw support too soon or fail to deliver effective vaccines, the Organisation for Economic Co-operation and Development (OECD) warned.

Cutting its 2021 global growth forecast to 4.2% from 5% in September, the Paris-based organisation said a pattern of lockdowns is likely to continue with rising risks of permanent damage.

The forecast for the UK was slashed to 4.2% from 7.6%. The US projection was lowered to 3.2% from 4%.

“Policy still has a lot to do,” OECD chief economist Laurence Boone said. “If public health or fiscal policy falter then we would see a loss of confidence and a much more depressing outlook.”

The renewed call for sustained government action highlights the fragility of the world economy as the shock of the early months of the pandemic gives way to a prolonged slump in many regions.

That cautious view is shared by central bankers, despite the recent positive news on vaccines.

On Monday, the US’ Federal Reserve chair Jerome Powell warned that “significant challenges and uncertainties remain”.

Successful deployment of a treatment would allow governments to finally end lockdown measures, businesses to reopen and people return to work. With so much hope pinned on that, delays could have a shattering impact, according to the OECD.

“The toll on the economy could be severe, in turn raising the risk of financial turmoil from fragile sovereigns and corporates, with global spillovers,” Boone said.

There’s also a heightened risk of divergence between regions that could develop into lasting changes in the world economy.

Governments should continue to support their economies beyond the end of lockdown measures and avoid “fiscal cliffs”.

–