OECD: World Set for the Most Severe Economic Recession in Nearly a Century

Published June 11th, 2020 - 07:00 GMT
OECD: World Set for the Most Severe Economic Recession in Nearly a Century
At its peak, unemployment in the OECD economies would be more than double the rate prior to the outbreaks. (Shutterstock)

The global economy will contract at least six per cent this year due to the pandemic crisis "without precedent in living memory", triggering the most severe economic recession in nearly a century, the Organisation for Economic Cooperation and Development (OECD) said on Wednesday, warning that recovery will be "slow and uncertain"

The OECD said in its latest outlook that in the case of a second wave of contagion later in the year, world economic output could shrink by as much as 7.6 per cent in 2020 before climbing back 2.8 per cent in 2021. At its peak, unemployment in the OECD economies would be more than double the rate prior to the outbreaks, with little recovery in jobs next year.

The Paris-based body said if a second wave of infections is avoided, global economic activity is expected to fall by six per cent in 2020 and OECD unemployment is forecast to climb to 9.2 per cent from 5.4 per cent in 2019.

The OECD, which comprises 37 countries that, along with key partners, represent 80 per cent of global trade and investment, said that by the end of 2021, the loss of income exceeds that of any previous recession over the last 100 years outside wartime, with dire and long-lasting consequences for people, firms and governments.

As restrictions begin to ease, the path to economic recovery remains highly uncertain and vulnerable to a second wave of infections. Strengthening healthcare systems and supporting people and businesses to help adapt to a post-Covid world will be crucial," said the OECD outlook entitled "World Economy on a Tightrope".

Speaking ahead of a special Roundtable Ministerial Meeting, OECD secretary-general Angel Gurría said uncertainty is clearly extreme in the current context, but the implications of that for macroeconomic policies are not symmetric. Policy-makers were right not to be too slow to introduce emergency measures, and they should now guard against being too quick to withdraw them."

Presenting the outlook, OECD chief economist Laurence Boone said extraordinary policies will be needed to walk the tightrope towards recovery. "Restarting economic activity while avoiding a second outbreak requires flexible and agile policymaking." She said the safety nets and support currently provided for badly-hit sectors would need to be adapted to help businesses and workers move to new activities.

"Higher public debt cannot be avoided, but debt-financed spending should be well-targeted to support the most vulnerable and provide the investment needed for a transition to a more resilient and sustainable economy," she said.

"Governments must seize this opportunity to build a fairer economy, making competition and regulation smarter, modernising taxes, government spending and social protection," she added. "Prosperity comes from dialogue and cooperation. This holds true at the national and global level."

The outlook calls for stronger international cooperation to help end the pandemic more quickly, speed up the economic recovery, and avoid harming the catch-up process of emerging-market economies and developing countries. It also argues for encouraging more resilient supply chains, including larger holdings of stocks and more diversification of sources locally and internationally.

On Monday, in an updated "Global Economic Prospects", the World Bank projected that global economic activity will shrink by 5.2 per cent this year, the deepest recession since a 13.8 per cent global contraction in 1945-46 at the end of World War II.

Kristalina Georgieva, managing director the International Monetary Fun, has signalled a possible downward revision of global economic forecasts, and warned the United States and China against rekindling a trade war that could weaken a recovery from the coronavirus pandemic. She said recent economic data for many countries was coming in below the fund's already pessimistic forecast for a three per cent contraction in 2020.

In a previous report in March, by when the outbreak had hit China but not yet the world's other large economies, the OECD slashed its global growth forecast by half a percentage point to 2.4 per cent, which would have been the worst performance since the 2008 financial crisis.

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