On Wednesday the OECD published its twice-yearly economic forecast, the first since the COVID-19 pandemic brought the global economy to a rapid halt.
In its announcement, the OECD acknowledges and welcomes the various economic, health and containment measures introduced by national governments to prevent the virus’ spread but warned of the “most severe recession in nearly a century.”
While restrictions are easing and economies are reopening, the club of the 100 richest economies cautioned against too much optimism in the continued absence of a widely available vaccine this year.
If a second wave of infections can be avoided, the OECD expects 2020 global economic activity to fall by 6% with unemployment to climb to 9.2% from 5.4% in 2019. If, however, a second wave were to trigger a return to lockdowns, world economic output is forecast to dive 7.6% this year, before moderately growing by 2.8% in 2021.
According to its estimates, eurozone countries, which have been particularly strict in locking down their national economies, would feel the greatest economic impact with a 9.1% GDP reduction in 2020. In case of a second wave, the organisation estimates GDP to fall as low as 11.5% for the year.
Unsurprisingly Spain, France and Italy, are expected to face the greatest economic impacts as a result of their strict and longer lockdown periods with the countries’ economies expected to contract by as much as 14% under a “double-hit” scenario.
From an EU recovery perspective, the OECD’s economic impact expectation, in line with the European Commission’s recently updated spring economic forecast, further strengthens the countries’ claim to a larger chunk of the Commission’s mooted €750 billion Next Generation EU Recovery Fund.
The report calls on countries to step up supports and funding to help people and businesses in the most affected sectors: tourism, hospitality and entertainment, which primarily employ low-skilled, young, and informal workers.
Speaking at the presentation of the report, OECD Secretary-General Angel Gurría reiterated that “uncertainty is clearly extreme in the current context,” adding that “how governments act today, will shape the post-COVID-19 world for years to come where the right policies can foster a resilient, inclusive and sustainable recovery.” Calling for targeted and future-proof spending, OECD Chief Economist Laurence Boone added that “governments must seize this opportunity to build a fairer economy, making competition and regulation smarter, modernising taxes, government spending and social protection.”
Compliments of Vulcan Consulting – a member of the EACCNY.