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October 16, 2020 | OECD: Most Economies Will Remain Well Below 2019 Output Levels By End of 2021

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel (www.venablepark.com) Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog: www.jugglingdynamite.com

According to third-quarter forecasts by the OECD, by the end of 2021, most economies, including Canada, will have a level of output that remains well below that of 2019, and considerably weaker than projected a year ago.

As shown in the graphic below, all projected growth paths undershoot the 2019 forecast (shown in grey), including a best-case scenario where the pandemic ends in 2021 (top pink dashed line), a downside (lower dashed line) where it does not, and the current forecast where it is assumed contained and managed enough to keep the economy out of lockdown and employment recovering.

Bu the end of 2021, America’s economy is forecast to be the same size as it was in 2019, China’s is expected to be 10% larger, while Europe and Japan are forecast to remain below their 2019 pre-pandemic level of output for several years.

The variation is the result of differences between how effective countries are in stopping the spread of COVID-19 but also the extent to which they are dependent on manufacturing versus services which have been the hardest hit from the reduction in discretionary spending. As observed by The Economist in The pandemic has caused the world’s economies to diverge:

Over the past week Paris has closed its bars and Madrid has gone into partial lockdown. In China, meanwhile, you can now down sambuca shots in nightclubs. Another difference is the pre-existing structure of economies. It is far easier to operate factories under social distancing than it is to run service-sector businesses that rely on face-to-face contact. Manufacturing makes up a bigger share of the economy in China than in any other big country.

More good reasons to invest in domestic manufacturing and the production of essential goods in Canada.

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October 16th, 2020

Posted In: Juggling Dynamite

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