KEY POINTS

  • Global gross domestic product is expected to rebound by 5% in 2021
  • Argentina, Brazil and Mexico will see their economies plunge by 11.2%, 6.5% and 10.2%, respectively, this year
  • France, Germany, Italy and U.K. will see their GDPs fall by 9.5%, 5.4%, 10.5% and 10.1%, respectively, in 2020

Global gross domestic product is expected to drop by 4.5% this year, before rebounding by 5% in 2021, according to an outlook released Wednesday by the Organization for Economic Cooperation and Development.

The projected 2020 contraction is actually an improvement from the OECD’s June outlook – when it forecast a 6% global drop – due “primarily to better than expected outcomes for China and the United States in the first half of this year and a response by governments on a massive scale.”

Still, OECD cautioned that economic output at the end of 2021 in many countries will remain below far below projections from before the pandemic.

Among Latin American countries, OECD predicted that Argentina, Brazil, and Mexico will see their economies plunge by 11.2%, 6.5% and 10.2%, respectively, this year.

In Asia, economic forecasts varied widely – from a 10.2% drop in India to a slight 1.8% gain in China. OECD also forecast a 5.8% GDP decline in Japan and a 1% slip in South Korea. (China is the only G20 country that is expected to grow its economy this year)

Major European states are expected to suffer heavy declines this year: France, Germany, Italy and U.K. will see their GDPs fall by 9.5%, 5.4%, 10.5% and 10.1%, respectively, in 2020.

The OECD has penciled in a 3.8% GDP drop for the U.S.

“After an unprecedented collapse in the first half of the year, economic output recovered swiftly following the easing of containment measures and the initial reopening of businesses,” OECD stated. “But the pace of recovery has lost some momentum more recently. New restrictions being imposed in some countries to tackle the resurgence of the virus are likely to have slowed growth.”

OECD reminded that its forecasts are subject to many risks and uncertainties.

If the threat from COVID-19 fades more quickly than expected, OECD added, “improved business and consumer confidence could boost global activity sharply in 2021.”

On the other hand, a stronger resurgence of the virus, or more stringent lockdowns, could reduce global economic growth in 2021 by 2% to 3%, OECD cautioned, featuring even higher unemployment and a prolonged period of weak investment.

“The world is facing an acute health crisis and the most dramatic economic slowdown since the Second World War,” OECD Chief Economist Laurence Boone said. “The end is not yet in sight but there is still much policymakers can do to help build confidence.”

OECD also warned that many companies most negatively impacted by the lockdowns – including service sector businesses like transport, entertainment, and leisure – may collapse if demand fails to recover, resulting in huge job losses.

OECD Secretary-General Angel Gurria told Bloomberg: “The problem is that this V-shaped recovery is not going to happen. What we are saying is No 1, don’t take away the support, don’t take away the relief, too fast.”

Boone added in the OECD report: “It is important that governments avoid the mistake of tightening fiscal policy too quickly, as happened after the last financial crisis. Without continued government support, bankruptcies and unemployment could rise faster than warranted and take a toll on people’s livelihoods for years to come. Policymakers have the opportunity of a lifetime to implement truly sustainable recovery plans that reboot the economy and generate investment in the digital upgrades much needed by small and medium-sized companies, as well as in green infrastructure, transport and housing to build back a better and greener economy.”

OECD particularly focused on governments fighting climate change as part of their recovery programs.

“Climate change and biodiversity loss are the next crises around the corner and we are running out of time to tackle them,”  Gurria said. “Green recovery measures are a win-win option as they can improve environmental outcomes while boosting economic activity and enhancing well-being for all.”