OECD Slashes 2021 Global Forecast, Warns Gov'ts Must Continue Fiscal Support 

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by Tyler Durden
Tuesday, Dec 01, 2020 - 09:10 AM

The Organization for Economic Cooperation and Development (OECD) warned Tuesday that the virus pandemic's resurgence across the Western world has weakened the global recovery and could worsen as governments withdraw or do not provide enough fiscal support. 

OECD's latest Economic Outlook slashed its 2021 global growth forecast to 4.2% from 5% in September. The Paris-based organization said, "activity will continue to be restricted with social distancing and partly-closed borders most likely remaining through the first half of 2021." 

Source: OECD 

It said, "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 programs and where effective vaccinations can be distributed rapidly should perform relatively well, but a high degree of uncertainty persists."

Some of the largest downgrades in growth for 2021 were in Europe and the UK, with a forecast slashed to 4.2% from 7.6%. The US also had its growth projection cut to 3.2% from 4%. 

Source: BBG 

OECD Chief Economist Laurence Boone warned, "if public health or fiscal policy falters, then we would see a loss of confidence and a much more depressing outlook."

"The toll on the economy could be severe, in turn raising the risk of financial turmoil from fragile sovereigns and corporates, with global spillovers," Boone continued.

The OECD said in its report that Europe and North America will be smaller contributors to global GDP next year as their recoveries flounder, while China will account for over one-third of the global expansion. 

Source: BBG 

The report made clear that governments need to continue supporting robust fiscal programs to avoid "fiscal cliffs." Despite soaring public debt, the OECD was not concerned about mounting debt loads because borrowing costs are low. 

The deployment of COVID-19 vaccines could be one of the significant factors in determining the global recovery trajectory next year. A successful deployment of the vaccine would allow governments to ease strict lockdowns and fully reopen economies. 

With so much hope pinned on a successful vaccine deployment, any delays could produce significant setbacks. 

"Despite the huge policy band-aid, and even in an upside scenario, the pandemic will have damaged the socio-economic fabric of countries worldwide," Boone warned.