Rich Economies Set to Recover More Quickly From Covid-19 Contractions

By Paul Hannon 

China and other rich countries will suffer less economic damage from the coronavirus pandemic than previously feared, according to the Organization for Economic Cooperation and Development, but the global public health emergency will exact a higher toll on the economies of poor countries.

The Paris-based research body Wednesday said the global economy will contract less sharply this year than it thought likely in June, but warned that the recovery is set to slow from this month and remain vulnerable to fresh outbreaks. The OECD doesn’t expect a vaccine to be widely available until the end of next year.

“Momentum appears to be plateauing and confidence remains weak,” said Laurence Boone, the OECD’s chief economist.

In the latest of its quarterly reports on the global economy, the research body said it now expects the U.S. economy to shrink by 3.8% this year, having forecast a decline of 7.3% in June.

“There was a little more work than expected in the second quarter, so a less strict confinement,” said Ms. Boone. “The reopening happened very quickly.”

The OECD expects the U.S. economy to recoup its 2020 losses in 2021, but only if lawmakers can agree to another round of stimulus amounting to roughly $1.5 trillion.

“If there is no follow-up, then 2021 will take a hit,” said Ms. Boone. “We are concerned that if there is no stimulus, people in the most precarious position will suffer most.”

Europe is now expected to lose less ground than in June, although the upgrade is smaller than for the U.S. In China, where the pandemic has largely been contained, the OECD expects to see growth for 2020 as a whole, having previously forecast a contraction.

However, a number of poor countries are set to suffer larger falls in output than was expected in June due to the continued spread of the virus and the fewer tools available to governments to protect jobs and business.

The OECD now expects India’s economy to contract by 10.2%, having previously forecast a 3.7% decline in output. India has surpassed Brazil to have the second-largest number of total recorded infections, with nearly 4.7 million as of Saturday. The average number of new daily cases in India recently surpassed the U.S. to lead the world.

The OECD, which provides policy advice to its member governments, said the uncertain course of the pandemic remains the dominant factor for the economic outlook. It estimates that if more modest restrictions on activity were needed to contain the virus in 2021, or a vaccine became widely available earlier than expected, the global economy could grow by 7%.

Assuming restrictions remain as they are, and a vaccine becomes available toward the end of 2021, the OECD expects the global economy to grow by 5%. But more draconian restrictions and a delay in the availability of a vaccine could cut growth to just 2.5%.

The OECD warned governments against repeating “the fiscal mistakes of the last crisis” by removing support for households and businesses too soon. But it said the support offered should change, with more emphasis on retraining workers in sectors that have a doubtful future and finding ways to reduce the debts incurred by many businesses, possibly by converting government loans into shareholdings.

Write to Paul Hannon at [email protected]


(END) Dow Jones Newswires

September 16, 2020 05:17 ET (09:17 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.

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