The Organisation for Economic Co-operation and Development has revised its outlook on the global economy, predicting a 4.2 per cent contraction this year.
This is an improvement from its earlier forecast of 4.5 per cent, as progress on vaccine trials buoys hopes for a quick recovery.
The organisation expects the global economy to expand 4.2 per cent in 2021, down from an earlier forecast of 5 per cent, as lockdowns and a rise in coronavirus cases across the globe crimp growth. It forecasts the global economy to grow 3.7 per cent in 2022.
"The prospect of a number of Covid-19 vaccines becoming widely available next year has lifted hopes for a faster recovery, but policymakers will need to retain both public health and fiscal support while acting decisively for the momentum to pick up," the Paris-based organisation said in its latest Economic Outlook.
The OECD, however, warned the recovery “will be uneven across countries and sectors and could lead to lasting changes in the world economy".
“Countries with effective testing, tracking and isolation programmes and where effective vaccinations can be distributed rapidly should perform relatively well, but a high degree of uncertainty persists.”
Pfizer and its partner BioNTech are currently seeking regulatory clearance for their Covid-19 vaccine in the European Union, aiming to secure approval to distribute it before the end of the year. The companies have already signed deals to deliver hundreds of millions of doses of vaccine to EU countries.
China will be the only country covered by the OECD to see growth this year, at 1.8 per cent. The US, the world’s largest economy, will contract by 3.7 per cent. The UK will shrink by 11.2 per cent while the euro area is set for a 7.5 per cent decline. Among G20 countries, Saudi Arabia’s economy will contract by 5.1 per cent and India by 9.9 per cent.
In 2021, the US economy will grow 3.2 per cent, while the UK’s economy will expand by 4.2 per cent. The EU is expected to record growth of 3.6 per cent, while India’s economy will expand 7.9 per cent and Saudi Arabia by 3.2 per cent.
The overall global gross domestic product will return to pre-crisis levels by the end of 2021, led by a strong recovery in China which is expected to grow 8 per cent, according to the OECD.
“Building back better requires leadership and action to build on the promises of vaccines, and to relaunch multilateral negotiations on trade, climate and digital standards to pave the way for a more sustainable growth and a society where opportunities are available for all,” OECD secretary-general Angel Gurria, said.
The OECD warned that corporate debt is reaching levels last seen during the global financial crisis a decade ago, raising the risk of insolvencies and cutting firms’ capacity to invest, which would weaken a broader economic recovery.
The coronavirus pandemic has killed more than 1.47 million people globally and infected about 64 million, according to Worldometer, which tracks the pandemic.
It has wiped out millions of jobs, plunged populations into extreme poverty and pushed the world economy into a steep recession.
The organisation called for “determined action” from policymakers to strengthen public health services as well as support for the vulnerable by expanding social safety nets and improving training for youth and low-skilled workers.
Businesses should be supported through grants and equity rather than loans, which add to the existing debt, it said.