The UK economy will fare better than originally expected this year, the OECD has predicted, although it will still suffer one of the biggest hits from the coronavirus pandemic in the world.
The global economic organisation also said the world economy would weather the coronavirus pandemic better than initially thought. It predicted global GDP would shrink by 4.5 per cent, whereas it had previously expected a six per cent contraction.
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Britain’s economy is expected to shrink an enormous 10.1 per cent in 2020. But that is better than the 11.5 per cent contraction the OECD foresaw in June
The prediction puts it in a league with Mexico (whose economy is expected to shrink 10.2 per cent), India (10.2 per cent) and Italy (10.5 per cent). It is well off the 5.4 per cent contraction predicted in Germany and the 5.8 per cent fall in GDP expected in Canada.
The improved global outlook was largely driven by faster-than-expected recoveries in China and the US, the OECD said.
China’s economy is predicted to grow by 1.8 per cent in 2020. That is a huge improvement from the 2.6 per cent contraction originally pencilled in.
US GDP will shrink by 3.8 per cent, the OECD predicted. Again, that is a massive upward revision from the 7.3 per cent collapse previously expected.
“A sharper-than-expected recovery took place in China, with activity returning quickly to pre-pandemic levels by the end of the second quarter,” the OECD said in a report.
Countries should avoid tax rises, OECD says
The OECD – the Organisation for Economic Co-operation and Development – is an international organisation that tries to promote growth, cooperation and trade.
Economies such as the UK that are dependent on “service sector activities requiring social interactions” were “strongly affected” by the pandemic, it said.
“High uncertainty, weak confidence and employment declines are likely to keep precautionary saving elevated for some time,” the report added.
“But spending levels should pick up slowly provided outbreaks of the virus remain controlled.”
The OECD said that its prediction for the UK assumed that a trade deal would be struck with the EU. That is currently doubtful, however.
It added that governments must do all they can to promote growth. That means it is too early for tax rises or spending cuts, it said.
“The aim must be to avoid premature budgetary tightening at a time when economies are still fragile.”