Coronavirus: OECD gloomy on economic rebound
Shutdowns associated with Victoria’s second COVID-19 wave will drive a much weaker than expected rebound, says the OECD.
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.
The more pessimistic prediction from the Paris-based organisation leaves growth below trend in 2021, and 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.
The OECD update represented a turnaround from the June outlook, which included a marked improvement in Australia’s economic prospects, even as the rest of the world was downgraded. The earlier report also warned that a national second wave would cost the national economy $25bn and flatten the recovery. Since then, Melbourne’s stage-four lockdown from early August, alongside stricter restrictions in regional Victoria, have triggered a much more pessimistic view.
With the outlook “subject to considerable uncertainty” around the path of the virus over coming months, the OECD said governments would need to stimulate their economies through 2021. “The aim must be to avoid premature budgetary tightening at a time when economies are still fragile,” it said.
The OECD did throw its weight behind the Morrison government’s decision to taper its JobKeeper and JobSeeker payments. “The maintenance of strong fiscal support should not prevent necessary adjustments to key emergency programs — including job retention schemes, and income support measures — to limit long-lasting costs from the crisis and encourage the needed reallocation of resources towards expanding sectors,” the report said.
OECD economists assume a vaccine will not be widely available until late 2021.
Countries will suffer “sporadic” virus outbreaks over coming months, which will require the implementation of localised, rather than national, restrictions.
The hit to the global economy this year will not be as severe as predicted in June: a 4.5 per cent contraction in world GDP versus 6pc previously forecast.
The OECD’s estimate for the pace of the global recovery in 2021 remained largely unchanged at 5 per cent against 5.2 per cent previously: “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.”
The strength of next year’s global rebound will depend heavily on health outcomes. Better than expected success in controlling the virus would provide a “significant” lift to economic activity, but “a stronger resurgence of the virus, or more stringent containment measures, could cut 2-3 percentage points from global growth in 2021,” the report said.
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