By Willa Lerner
The global economy has undergone a turbulent 12 months following the spread of the COVID-19 pandemic. As the pandemic’s economic consequences ricocheted around the world, countries faced severe collapses in employment, increasing border closures, and an urgent need for government-sponsored economic relief packages. As 2020 comes to a close, economic confidence has started to return—albeit with significant caveats. The rapid development of vaccines and the slow but relatively steady rise in employment has suggested that the absolute worst of the crisis may be over. However, many countries are facing a second wave (or the continuation of the first wave) of infections—delayed or mishandled vaccine distribution could prolong the economic downturn.
Earlier this month, the Organization for Economic Cooperation and Development (OECD) released the second issue of their 2020 Economic Outlook report. The report provides an analysis of major economic trends and prospects for the next two years, including output, employment, government spending, prices, and current debt balances. All 36 OECD member countries are included, as well as a select group of non-member countries. According to the report, global gross domestic product (GDP) will rise by 4.25% in 2021, reaching pre-pandemic levels, with continued growth (3.75%) anticipated in 2022.
In September, the OECD released a Latin America Economic Outlook report, noting the unprecedented socio-economic impact of the pandemic across the region as regional GDP is expected to contract by more than 9% and poverty rates are expected to increase by more than 4.4%. As with the rest of the world, economic recovery will be uneven, with developing markets, tourist-heavy economies, and informal workers continuing to bear the brunt of the economic collapse. Across the region, almost 40 percent of workers lack access to formal social assistance and protections. Among the 2.7 million companies expected to close their doors, many are small businesses unable to ride out the economic shock, potentially resulting in the loss of 8.5 million jobs.
Argentina struggled with the consequences of a prolonged lockdown but has recently restructured its public debt and seen the beginning of a rebound in manufacturing and construction. The country’s GDP is expected to rise by 3.7% in 2021 after falling almost 13% in 2020. In Brazil, high transmission and fatality rates are expected to constrain economic activity short of pre-pandemic levels, even by late 2022. However, a temporary emergency measure supporting over 67 million low-income households will contribute to 2.6% GDP growth in 2021. Recovery in Chile will likely occur in fits and starts as the country has fallen into its deepest economic recession since 1982. Some loosening of restrictions, though, has pointed towards an uptick in short-term economic indicators. Mexico, which reported its first case of COVID-19 in late February and quickly faced a sharp drop in GDP, is now poised for a recovery heavily reliant on manufacturing exports.
GDP across the European region is projected to decline by approximately 7.5% in 2020 but reach pre-pandemic levels by late 2022 after 3.5% and 3.25% growth in 2021 and 2022, respectively. Despite some positive signals this summer, tightened restrictions following infection spikes have seen a decline in economic activity and fourth quarter GDP growth is expected to again be negative. Unemployment will likely continue to rise until mid-2021, at which point it may begin a slow but steady decline. With the new flare-up in infections, the European Union is recommending a coordinated approach to cross-border travel restrictions. In the United Kingdom, the end of the transitional period of the UK-EU Withdrawal Agreement (“Brexit”) is fast approaching on December 31, 2020. If a deal is not reached before the deadline, the UK could end the transition period facing new economic burdens on trade, productivity, and jobs.
As of July 2020, GDP in the Emerging Asia region was expected to decline by only 2.9% in 2020 and 2.8% in ASEAN-10. Pre-pandemic growth rates are expected to be reached by 2021, with 6.8% growth in Emerging Asia and 5.6% in ASEAN. Due to effective COVID-19 containment measures, Korea is expected to have the least decline in GDP of all OECD member countries—just over 1%. Japan suffered a more decisive impact, with GDP expected to fall by approximately 5.25% in 2020. The country has struggled to contain new COVID-19 infections and will likely not see a dramatic increase in growth in the coming two years. China, one of a few non-OECD member countries included in the report, faced the earliest outbreak of COVID-19 but also began the earliest economic recovery. It is expected to account for approximately one-third of the world’s economic growth in 2021.
The COVID-19 pandemic will leave a lasting impact across the globe. While the turn towards recovery seems imminent, there is much that remains to be done to alleviate the socioeconomic stratification the pandemic has exacerbated. Employment is rising, but significant numbers of people remain underemployed and economic activity is expected to remain well below pre-pandemic projections in many countries. As governments strategize their recovery policies, the OECD has highlighted three critical actions: investing and supporting skill development in essential goods and services (education, health, physical and digital infrastructure); taking decisive action to reverse the rise in poverty and income inequality; and prioritizing international cooperation to coordinate and establish processes for virus control, vaccine distribution, and economic aid.