The UK economy will be among the hardest hit by the pandemic, a leading international agency has suggested
The Organisation for Economic Co-operation and Development (OECD) predicts that by the end of 2021 it will be more than 6% smaller than before the Covid health crisis.
Among the world’s major economies only Argentina is predicted to do worse.
By contrast, the OECD predicts the global economy overall will be back to pre-pandemic levels by then.
There is some cautious optimism for next year and beyond in this report, but that is struggling against the immediate fact that there have been new virus outbreaks and containment measures.
That is likely to lead to further declines in economic activity in the short term in some countries, especially in Europe.
Nonetheless, the report says that for the first time since the pandemic began there is now hope for a brighter future.
Recent vaccine developments are the reason.
“Progress with vaccines and treatment have lifted expectations and uncertainty has receded.”
But the uncertainty hasn’t gone away, and even if the vaccine hopes are fulfilled, there will be further economic strains, the report says, during the wait for them to be widely distributed.
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For Britain, the OECD predicts the economy will shrink in 2020 by 11.2%, followed by growth of 4.2% and 4.1% in the next two years.
Unemployment will rise to an average of 7.4% in 2021, though as it is an average the peak would likely be somewhat higher. Before the crisis, the figure was below 4% so that’s a large increase, though many other countries are likely to see higher levels.
The report says it’s important for the UK to conclude a trade deal with the European Union by the end of the year. Failure to do so would, it says, “entail serious additional economic disturbances in the short term and have a strongly negative effect on trade, productivity and jobs in the longer term”.
The OECD says the government and the Bank of England should maintain policies to support the economy until a recovery is well underway.
For the world economy, the recovery predicted next year is uneven. A third of the global growth is down to China, which by the end of next year is forecast to be almost 10% ahead of where it was at the end of 2019.
The rich countries will rebound in 2021 but it will be only a partial recovery from this year’s recession.
Among the major developed economies, only the US is forecast to be ahead of pre-pandemic levels by the final quarter of next year and even that is by a small margin.
Most, including the UK will be significantly behind. So too will several important developing economies in addition to Argentina, including India and South Africa.