World economic slump won’t be as bad as OECD had feared — but it’s still grim

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While that initially strong pickup means the 2020 number looks a little less grim, the pace of the recovery is now fading, and output in many countries will still be below its pre-crisis level at the end of 2021. There’s also a risk of long-lasting damage to economies, as well as bankruptcies and job losses.

Amid such dangers, the OECD said governments and central banks will need to continue to provide support into 2021, after huge efforts this year that have bloated balance sheets and stretched fiscal budgets.

Avoiding Zombies

But it added that assistance programs must evolve as growth picks up, allowing money to be better targeted at protecting businesses and jobs in sectors with a viable future. That echoes comments from the Bank for International Settlements on Monday, which said the challenge is to support companies without creating “zombie” firms that damage economies in the longer term.

While the OECD upgraded the global outlook, it also made huge downward revisions to a number of emerging markets. India’s economy will shrink 10.2 per cent this year, almost three times the previously forecast, while Argentina, Mexico and South Africa will also suffer more than predicted in June.

The OECD said there’s still huge uncertainty about the outlook, and its latest projections assume continued sporadic outbreaks of the virus along with targeted local interventions. The new forecasts compare with its “single shock” scenario in June, which was based on no second wave of COVID-19.

Bloomberg.com