The Organisation for Economic Cooperation and Development (OECD) revised upward its estimate on the world economy, which is faring better than expected but is still projected to contract 4.5 per cent this year compared with a 6 per cent forecast in June.
Better-than-expected second quarter economic data in most advanced economies including the US and China, the world's two largest economies, means the global gross domestic performance underpins the revision in outlook, the OECD said in its Interim Economic Outlook on Wednesday.
Still, the global economy continues to face unprecedented uncertainty as the Covid-19 pandemic persists and weighs heavily on the economic outlook of emerging market and less developed countries.
“In 2020, across many advance economies, the second quarter contraction was less than expected, particularly [in] the US,” OECD chief economist Laurence Boone, said at a virtual media briefing. “The Q2 outlook is less bad, but, it is still not a good outcome”.
After an unprecedented collapse in the first half of the year, economic output has recovered swiftly following the easing of containment measures and the initial reopening of businesses, the OECD said.
Though economic indicators for the third quarter are “not that bad”, the pace of recovery has lost some momentum more recently on the back of a rise in infections, she said.
If the threat from Covid-19 fades more quickly than expected, improved business and consumer confidence could boost global activity sharply in 2021. The OECD expects the global economy to grow 5.1 per cent next year.
However, even in that scenario, output in many countries at the end of 2021 will still be below the levels at the end of 2019, and well below what was projected prior to the pandemic.
A stronger resurgence of the virus, or more stringent lockdowns in the wake of a second wave may cut 2 to 3 percentage points from global growth in 2021. That may also lead to higher unemployment and a prolonged period of weak investment, according to the OECD.
The outlook remains "extraordinarily uncertain" and depended on the virus, government policies, consumer confidence and the behavior of people, Ms Boone said.
Covid-19 will continue to impact peoples' lives and livelihoods for the next 12 to 18 months, and there is an increased risk of global investment remaining subdued for a long period of time, she said.
“There is no way to sugar quote the outlook," Ms Boone said. "Unfortunately, the end is not in sight.”
The World Bank expects global output to shrink 5.2 per cent, while the International Monetary Fund sees it contracting 4.9 per cent this year.
Last week, the fund's managing director, Kristalina Georgieva, said the world is seeing an uneven recovery, but some nations have performed better-than-expected since May after the easing of pandemic-related movement restrictions.
Both Ms Boone and the Ms Georgieva have attributed the recovery partly to central banks and government policy measures that have put a floor under the global economy.
Ms Boone, however, warned against premature withdrawal of government support.
“It is important that governments avoid the mistake of tightening fiscal policy too quickly, as happened after the last financial crisis," she said. "Without continued government support, bankruptcies and unemployment could rise faster than warranted and take a toll on people’s livelihoods for years to come."