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Tuesday, May 21, 2024

Global economies will contract by 6% in 2020: OECD

The OECD has said that a global contraction of 6% of GDP is feared in the wake of the pandemic, which also underscored the World Bank's previous statement of the current recession being the worst in 150 years.

The world economy is to contract at least 6% in 2020, with the unprecedented loss of income and “extraordinary uncertainty” caused by measures to contain the coronavirus outbreak, the OECD said Wednesday. This comes on the heels of an earlier announcement by the World Bank of the world facing the ‘worst economic situation in 150 years’ and compounds the problems for policymakers across the globe. World Bank gave a prediction of a 7% decline for the world.

The OECD warned about a potential second wave of contagion later in the year, the economic output could shrink by as much as 7.6 percent, it warned.

In both scenarios, recovery will be “slow and uncertain”.

GDP growth should resume in 2021, by 5.2 percent if the virus is contained, and 2.8 percent 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.”

Read more: World facing worst economic situation in 150 years: World Bank

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 percent, 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 percent in some cases in what it called “an extraordinary shock”.

Global contraction of 6% feared: Trade expansion needed

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.”

Need for a fairer economy as global contraction of 6% feared

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.

World facing worst economic situation: World Bank

Earlier, the World Bank had said that the world is facing the worst economic situation in 150 years, and said the situation is deeply troubling.

“This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges,” said World Bank Group Vice President for Equitable Growth, Finance and Institutions Ceyla Pazarbasioglu. The depth of the crisis will drive 70 to 100 million people into extreme poverty — worse than the prior estimate of 60 million, she told reporters.

Read more: Corona pandemic is a gift of neoliberal economics?

And while the Washington-based development lender projects a rebound for 2021, there is a risk a second wave of outbreaks that could undermine the recovery and turn the economic crisis into a financial one that will see a “wave of defaults.”

Economists have been struggling to measure the impact of the crisis they have likened to a global natural disaster, but the sheer size of the impact across so many sectors and countries has made it hard to calculate, and made predictions about any recovery highly uncertain. Under the worst-case scenario, the global recession could mean a contraction of eight percent, according to the report. But Pazarbasioglu cautioned: “Given this uncertainty, further downgrades to the outlook are very likely.”

AFP with additional input by GVS News Desk