'Global economy faces tightrope walk to recovery amid COVID-19 crisis'

In a distressing report, OECD's latest Economic Outlook stated that coronavirus pandemic has triggered the most severe recession in nearly a century and is causing enormous damage to people's health, jobs and well-being. As restrictions begin to ease, the path to economic recovery remains highly uncertain and vulnerable to the second wave of infections.

Hyderabad: As the coronavirus continues to creep across the globe, it has triggered the most severe recession in nearly a century.

In a devastating report, OECD’s latest Economic Outlook said that the COVID-19 pandemic is a global health crisis without precedent in living memory. It has triggered the most severe economic recession in nearly a century and is causing enormous damage to people’s health, jobs and well-being.

As restrictions begin to ease, the path to economic recovery remains highly uncertain and vulnerable to the second wave of infections. Strengthening healthcare systems and supporting people and businesses to help adapt to a post-COVID world will be crucial, it says.

The lockdown measures brought in by most governments have succeeded in slowing the spread of the virus and in reducing the death toll but they have also frozen business activity in many sectors, widened inequality, disrupted education and undermined confidence in the future.

The forecast says that without a second wave, Global economic activity falls 6% in 2020 and OECD unemployment climbs to 9.2% from 5.4% in 2019. Living standards fall less sharply than with a second wave but five years of income growth is lost across the economy by 2021.

If a second outbreak occurs triggering a return to lockdowns, world economic output is forecast to plummet 7.6% this year, before climbing back 2.8% 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.

Read: Economy can't be revived unless medical science finds an answer to Coronavirus

The economic impact of strict and relatively lengthy lockdowns in Europe will be particularly harsh. Euro area GDP is expected to plunge by 11½% this year if a second wave breaks out, and by over 9% even if a second hit is avoided, while GDP in the United States will take a hit of 8.5% and 7.3% respectively, and Japan 7.3% and 6%.

Emerging economies such as Brazil, Russia and South Africa, meanwhile, face particular challenges of strained health systems, adding to the difficulties caused by a collapse in commodity prices, and their economies plunging by 9.1%, 10%, and 8.2% respectively in case of a double hit scenario, and 7.4%, 8% and 7.5% in case of a single hit.

China’s and India’s GDPs will be relatively less affected, with a decrease of 3.7% and 7.3% respectively in case of a double hit and 2.6% and 3.7% in case of a single hit.

In either scenario, Britain will fare a lot worse than its rivals in the developed world.

UK’s national income will see a fall of 11.5% during 2020 whereas Germany’s decline will be 6.6% this year while Spain’s GDP will fall by 11.1%, Italy’s by 11.3 and France’s by 11.4%.

Read: India's economy to contract by 3.2% in FY21: World Bank

Speaking ahead of a special OECD Roundtable Ministerial Meeting chaired by Spain’s Vice-President of the Government and Minister for Economic Affairs and Digital Transformation Nadia Calvino, to discuss policy responses to the pandemic, OECD Secretary-General Angel Gurria 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."

"How governments act today will shape the post-COVID world for years to come," he added. "This is true not only domestically, where the right policies can foster a resilient, inclusive and sustainable recovery, but also in terms of how countries co-operate to tackle global challenges together. International co-operation, a weak point so far in the policy response, can create confidence and have important positive spillover effects."

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 that 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 added.

It is to be noted that the Outlook calls for stronger international co-operation 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.