Global recession not as deep as expected, new report says

But governments, central banks need to continue their support — OECD

The global economic slump won’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 Organisation for Economic Cooperation and Development (OECD).

The world economy will shrink 4.5 per cent this year, less than the 6 per cent forecast in June, the Paris-based institution said yesterday, upgrading its outlook in response to rebounds in activity since lockdowns ended. There were big revisions for the US 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.

Strong economic pickup

The better view reflects the strong economic pickup in recent months. The US unemployment rate fell more than forecast in August, while China 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 Vshaped recovery is not going to happen,” OECD Secretary General Angel Gurria said. “What we are saying is number one, don’t take away the support, don’t take away the relief, too fast.” Assistance programmes must evolve as growth picks up, allowing money to be better targeted at protecting businesses and jobs in sectors with a viable future.