Better-than-expected recovery in China and the United States, and government stimulus policy are expected to help limit the global economic contraction, said the Organization for Economic Cooperation and Development (OECD) on Wednesday.
The global GDP is projected to decline 4.5 percent this year, before picking up five percent in 2021, said the OECD in its interim report. The projection marks an improvement compared with its June estimates of a six-percent-contraction this year.
The OECD warned that the COVID-19 pandemic would continue to exert a substantial toll on economies and societies, so the economic outlook remains uncertain.
"A recovery is now under way following the easing of strict confinement measures and the re-opening of businesses, but uncertainty remains high and confidence is still fragile," said the report.
The OECD said growth prospects depend on many factors, including the magnitude and duration of new COVID-19 outbreaks, the degree to which current containment measures are maintained or reinforced, the time until an effective treatment or vaccine is deployed, and the extent to which significant fiscal and monetary policy actions support demand.
Considerable differences between major economies can be seen, such as upward revisions in China, the United States and Europe, but weaker-than-expected outcomes in India, Mexico and South Africa.
Performances in different indicators also vary. For example, the recovery of global export orders is weak, which restrained the pace of the recovery in countries such as Germany, Japan and South Korea. Unemployment has soared in the United States and Canada, with lower-wage employees and younger workers being hardest hit.
Sharper-than-expected recovery takes place in China
China is the only G20 country in which output is projected to rise in 2020, supported by its rapid control of the coronavirus outbreak and the policy support driving quick work and production resumption.
The report said China's economic growth is projected to be 1.8 percent, up from a June projection of a contraction of 2.6 percent, also the only positive growth among countries and regions analyzed in the report.
China's economic activities quickly recovered to the pre-pandemic levels by the end of the second quarter. China's value-added industrial output rose 5.6 percent year on year in August, marking the fastest gain in eight months. The country's exports climbed 9.5 percent year on year last month, the strongest gain in 17 months.
Meanwhile, the United States was projected to perform better than expected with a 3.8-percent contraction in 2020, far better than the previous estimate of -7.3 percent.
Monetary and fiscal policy supports need to be maintained
The policy easing measures taken by central banks since the onset of the pandemic has been supportive of the economic stabilization and reduction of government debt serving costs, but the ongoing recovery is slow and gradual.
Therefore, complementary fiscal and structural policy measures will be needed to help restore confidence, demand, and economic dynamism, and tackle the asymmetric impact of the pandemic across sectors and households, said the report.
Countries have also taken substantial fiscal support since the pandemic began in a bid to prevent a recession. Fiscal measures are still needed in 2021 as the early withdrawal of these measures could hinder growth, the report warned.
At the same time, governments need to reassess the balance of support measures, ensuring that they are well targeted and closely monitored.
In addition, comprehensive public health interventions remain necessary to limit and mitigate new outbreaks and reduce uncertainty for consumers and businesses as uncertainties remain about the evolution of the pandemic in the next few months, said the report.
Enhanced global cooperation and coordination is essential to mitigate and suppress the virus, speed up recovery and keep trade and investment flowing freely.