Britain’s economic plunge will be less severe than feared this year as the global bounce-back from the pandemic gets firmly under way, but the world faces an uncertain 2021, according to a major international organisation.
The Organisation for Economic Co-operation and Development (OECD) has upgraded its outlook for the UK economy, predicting a contraction of 10.1% against the 11.5% tumble it forecast in June.
In 2021, the British economy is forecast to grow by 7.6%, down from the 9% expected in its single-hit scenario in June.
It also said the hit to the global economy would be “smaller than expected, though still unprecedented in recent history”, with a contraction of 4.5% predicted for 2020, against the 6% fall forecast in June.
The UK is among a raft of countries which saw improved projections from the Paris-based think tank, but it said the recovery had lost some momentum in the summer months as some countries imposed new restrictions.
In its interim economic outlook, the OECD cautioned the global recovery next year would be constrained by “sporadic local outbreaks”, targeted local restrictions and the likelihood that a Covid-19 vaccine would not be widely available until late in 2021.
It is pencilling in global growth of 5% next year, but warned this could be slashed to between 2% and 2.5% in the event of a widespread second wave of the virus and further lockdowns.
In its downside scenario, it said global equity prices could crash by 15% and non-food commodity prices tumble 10% in the first half of 2021.
The OECD said: “A recovery is now under way following the easing of strict confinement measures and the reopening of businesses, but uncertainty remains high and confidence is still fragile.
“If the threat from the coronavirus fades more quickly than expected, improved confidence could boost global activity significantly in 2021.
“However, a stronger resurgence of the virus, or more stringent containment measures, could cut 2-3 percentage points from global growth in 2021, with higher unemployment and a prolonged period of weak investment.”
The OECD also said there is a high risk of long-term scarring from the pandemic, with most economies expected to see output at the end of 2021 remain at or below that at the end of 2019 and “considerably weaker” than pre-crisis projections.
The OECD urged governments worldwide to keep fiscal support measures in place for 2021 and “avoid premature budgetary tightening at a time when economies are still fragile”.
It also said central banks worldwide should ensure monetary policy remains “supportive” and flexible as the pandemic and economic outlook evolves.
OECD chief economist Laurence Boone said: “It is important that governments avoid the mistake of tightening fiscal policy too quickly, as happened after the last financial crisis.
“Without continued government support, bankruptcies and unemployment could rise faster than warranted and take a toll on people’s livelihoods for years to come.”