As COVID-related restrictions begin to ease around the world, the path to economic recovery remains highly uncertain and susceptible to a second wave of infections.
Extraordinary measures and flexible policies will be needed to restart economies and prevent a second outbreak of COVID-19, which has triggered the most severe recession in nearly a century, according to the Organisation for Economic Cooperation and Development’s latest economic outlook.
Given that a vaccine is almost certainly not going to be available this year and amid widespread uncertainty, the OECD has presented two “equally likely” economic scenarios for 2020 and 2021.
World economic output is forecast to plummet 7.6% this year, before climbing back 2.8% in 2021, if a second outbreak of COVID-19 triggers a return to lockdown measures. Under this scenario, peak unemployment in OECD economies would be more than double the rate prior to the outbreaks, with little recovery in jobs next year.
If a second wave of infections is avoided, global economic activity is expected to fall by 6% in 2020 and OECD unemployment to climb to 9.2% from 5.4% in 2019.
Presenting the outlook on Wednesday, 10 June, 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 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,” Boone said.
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 US will take hits of 8.5% and 7.3%, respectively. Japan’s economy would decline by 7.3% and 6% under both scenarios.
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, with their economies forecast to plummet by 9.1%, 10%, and 8.2%, respectively, in case of a double-hit scenario.
For China and India, GDP will be relatively less affected, with projected decreases of 3.7% and 7.3%, respectively, in case of a double hit, and 2.6% and 3.7%, respectively, in case of a single hit.
In both scenarios, the recovery may be initially quick, but it will take a long time to bring output back to pre-pandemic levels. The crisis will leave long-lasting scars and cause a fall in living standards, high unemployment and weak investment, the OECD said.
Job losses in the most-affected sectors, such as tourism, hospitality and entertainment, will particularly hit low-skilled, young and informal workers.
The outlook said government support to help people and business in the hard-hit sectors will need to evolve but remain substantial.
Speaking at a OECD Roundtable Ministerial Meeting that discussed policy responses to the pandemic, OECD Secretary-General Angel Gurria said, “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”.
He said how governments act today would shape the post-COVID world for years to come.
“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,” Gurria said. “International cooperation, a weak point so far in the policy response, can create confidence and have important positive spillover effects.”
In the same vein, the OECD outlook calls for stronger international cooperation to help end the pandemic more quickly and speed up the economic recovery. It also argues for encouraging more-resilient supply chains, including larger holdings of stocks and more diversification of sources locally and internationally.