The Organisation for Economic Cooperation and Development said the global economy is undergoing the deepest recession since the Great Depression in the 1930s due to the coronavirus, or Covid-19, pandemic.
As restrictions begin to ease, the path to economic recovery remains highly uncertain and vulnerable to a second wave of infections, the Paris-based think tank said in its latest Economic Outlook, published on Wednesday.
Given the high uncertainty, the OECD has provided two equally possible economic scenarios. Global economic activity is expected to fall 6 percent in 2020 if a second wave of infections is avoided. The world economy will expand 5.2 percent in 2021.
The unemployment rate in the OECD is forecast to rise to 9.2 percent from 5.4 percent in 2019.
But global GDP will fall more sharply by 7.6 percent this year before rising 2.8 percent next year in case of a second outbreak of virus triggering a return to lockdowns.
In the United States, the Covid-19 has brought the longest growth on record to a juddering halt, the OECD said. If there is another virus outbreak later in the year, GDP is expected to fall by over 8 percent in 2020.
In the single-hit scenario, the U.S. GDP would shrink 7.3 percent this year before rising 4.1 percent in 2021.
Eurozone GDP is expected to plunge by 11.5 percent this year if a second wave breaks out, and by over 9 percent even if a second hit is avoided.
Germany’s GDP will decline 8.8 percent in 2020 if a second Covid-19 outbreak requires further containment measures or prolongs uncertainty. At the same time, the fall in GDP is estimated at 6.6 percent if the virus subsides by the summer.
If the pandemic is contained by the summer, France GDP will contract about 11.4 percent this year and rebound by 7.7 percent in 2021. Yet, if there is a second outbreak, GDP is projected to decrease 14.1 percent in 2020 and to recover by 5.2 percent in 2021.
Italy’s GDP will fall by 14 percent in 2020 before recovering by 5.3 percent next year if there is another virus outbreak later this year. If further outbreaks are avoided, GDP is projected to drop 11.3 percent in 2020 and to recover by 7.7 percent in 2021.
The UK GDP is projected to fall sharply by 14 percent in 2020 if there is a second virus outbreak later in the year. An equally likely single-hit scenario would still see GDP fall sharply by 11.5 percent.
According to OECD, China’s and India’s GDPs will be relatively less affected, with a decrease of 3.7 percent and 7.3 percent respectively in case of a double hit and 2.6 percent and 3.7 percent in case of a single hit.
The agency said the recovery will take a long time to bring output back to pre-pandemic levels and the crisis will leave long-lasting scars.
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,” said Gurría.
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.”
The OECD observed that strong fiscal support is warranted but it has consequences. The think tank called for well-targeted public spending to support the most vulnerable and provide the investment needed for a sustainable recovery.
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