How soon will the global economy recover from COVID-19, and in what shape will that occur?
The OECD has slashed its forecast for Australian GDP growth in 2021, saying shutdowns associated with Victoria’s second wave of COVID-19 will drive a much weaker than expected rebound.
In its latest economic outlook, the OECD upgraded its growth forecast for Australia in 2020, saying real GDP would contract by 4.1 per cent, or by 0.9 per cent less than it forecast in June.
The international body sharply downgraded Australia’s projected growth for 2021, saying it now expected real GDP to grow by 2.5 per cent, versus a previous estimate of 4.1 per cent.
And not surprisingly the shutdowns associated with Victoria’s second wave of COVID-19 will slow down our rebound.
The OECD reports that after collapsing in the first half of the year, world economic output recovered swiftly following the easing of measures to contain the COVID-19 pandemic and the initial re-opening of businesses.
Policymakers reacted rapidly and massively to buffer the initial blow to incomes and jobs.
But the pace of recovery has lost momentum over the last few months.
Restoring confidence will be crucial to how successfully economies can recover, and for this we need to learn to safely live with the virus according to the OECD.
An improved economic outlook for Australia
The hit to the global economy this year will not be as severe as predicted in June: a 4.5% contraction in world GDP compared to the 6% previously forecast.
“The drop in global output in 2020 is smaller than expected, though still unprecedented in recent history.
In effect, many major advanced economies could have lost the equivalent of 4-5 years of per capita real income growth by 2021.”
Of course the strength of next year’s global rebound will depend heavily on health outcomes.
The OECD update represented a turnaround from the June outlook, which included a marked improvement in Australia’s economic prospects, but this is well below the 4 per cent forecast from the Reserve Bank of Australia’s August economic outlook.
“The localised lockdowns, border closures and new restrictions being imposed in some countries to tackle renewed virus outbreaks are likely to have contributed to the recent moderation of the recovery in some countries, such as Australia,” the report said.
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