The OECD’s latest economic outlook makes tough reading for the UK – showing that Britain’s economy will be among the hardest hit by the pandemic.
The Paris-based thinktank expects the UK economy to shrink by 11.2% this year, and only grow by 4.2% in 2021 and 4.1% in 2022.
That’s much weaker than the global average. The OECD predicts the world economy will shrink by 4.2% in 2020, then by 4.2% next year and 3.7% in 2021.
The eurozone is expected to shrink by 7.5% this year, followed by 3.6% growth in 2021, while the US is on track for a 3.7% contraction then a 3.2% recovery.
A strong recovery in China should GDP back to pre-crisis levels by the end of 2021, it forecasts.
But as this chart shows, Britain is far behind – with Argentina the only G20 nation expected to perform worse.
The OECD predicts the UK will suffer weak business investment, increased border costs once the Brexit transition ends, and a rise in unemployment and bankruptcies – although the furlough scheme and Covid-19 crisis loans will cushion the blows.
In its report, it says the UK’s ‘initially strong rebound’ in the July-September quarter is set to go into reverse this quarter, after Covid-19 cases rose again.
It also warns that growth could be even weaker if the health situation worsens further, saying:
A deterioration could prompt additional restrictions on economic activity and lead to a slower recovery.”
The forecasts underline that Britain is set to suffer more economic pain from the pandemic than most other nations, as well as running up a record deficit and suffering over 58,000 deaths (within 28 days of positive test)
As the FT’s Chris Giles puts it:
Towards the end of next year, Britain’s economy would still be 6.4 per cent smaller than it was in the fourth quarter of 2019, the OECD predicted. This was better than Argentina’s projected loss of 7.9 per cent, but lower than all other leading economies.
China’s economy was on course to be 9.7 per cent larger than it was at the end of 2019, with gains also seen in South Korea and Indonesia. The US was set to have lost only 0.1 per cent and the eurozone 3 per cent.
The UK’s problem, the OECD said, was allowing the virus to spread extensively in the first and second wave along with very extensive lockdowns to control the extent of the disease. The economic shock was “particularly sudden”, the organisation said.
Overall, the OECD says the outlook for the global economy is improving, but the crisis isn’t over.
OECD chief economist Laurence Boone cautions:
“We’re not out of the woods. We’re still in the midst of a pandemic crisis, which means that policy still has a lot to do.
And for that reason, the OECD is also urging governments not to risk choking the recovery by cutting spending too soon. More here: