PARIS: The global economy will contract at least six per cent this year, with the unprecedented loss of income and “extraordinary uncertainty” caused by measures to contain the coronavirus outbreak, the OECD said on Wednesday.
In the case of a second wave of contagion later in the year, economic output could shrink by as much as 7.6 per cent, it warned.
In both scenarios, recovery will be “slow and uncertain”.
GDP growth should resume in 2021, by 5.2 per cent if the virus is contained, and 2.8 per cent if there is another infection wave, the Organisation for Economic Co-operation and Development said in its latest outlook, entitled “World Economy on a Tightrope”.
It warned that by the end of next year, “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 unemployment rises, private debt levels in some countries are “uncomfortably high,” said the report, “and business failure and bankruptcy risks loom large.”
In its previous outlook 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.
Things have got considerably worse since then, with commerce and travel shut down as governments scrambled to rein in the pandemic by keeping people at home.
The outbreak has nevertheless killed more than 400,000 people worldwide to date.
Economic activity in the OECD’s 37 developed member countries has collapsed, the report said, by as much as 20 or 30 per cent in some cases in what it called “an extraordinary shock”.
As long as there is no vaccine or treatment against the coronavirus, physical distancing to prevent contagion, testing people for the virus, and tracing and isolating those infected, will remain key to fighting the pandemic.
But under such conditions, sectors affected by border closures and those requiring close personal contact, such as tourism, travel, entertainment, restaurants and accommodation, “will not resume as before.”
And even these steps may not even be enough to prevent a second outbreak.
“Global cooperation to tackle the virus with a treatment and vaccine and a broader resumption of multilateral dialogue will be key for reducing doubt and unlocking economic momentum,” the OECD said.
“The international community should ensure that when a vaccine or treatment is available it can be distributed rapidly worldwide. Otherwise the threat will stay.
“Likewise, resuming a constructive dialogue on trade would lift business confidence and the appetite for investment.”
Governments and central banks have taken extraordinary steps to protect businesses and employees from the outbreak’s economic fallout.
But this too has consequences, said the report, with gross public debt rising fast.
“Governments can provide the safety nets that allow people and firms to adjust, but cannot uphold private sector activity employment and wages for a prolonged period.”
Governments will need to adjust their support, allowing fast restructuring processes for firms, providing income for workers between jobs, training for those laid off, and social protection for the most vulnerable, said the OECD.
The economic downturn has exacerbated inequality between workers, it added, with those able to work from home generally highly qualified, while many younger and lesser qualified people unable to work, or simply laid off.
The hardship was further compounded by unequal access to social protection.
“Governments must seize this opportunity to engineer a fairer and more sustainable economy, making competition and regulation smarter, modernising government taxes, spending and social protection,” it said.