OECD: second wave could wipe 11% off Euro area GDP

OECD Chief Economist Laurence Boone

The Organisation for Economic Co-operation and Development (OECD) warned on Wednesday that if a second major outbreak of Covid-19 occurs later this year and triggers a return to lockdowns then “world economic output is forecast to plummet 7.6% this year.”

The Paris-based OECD said 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.

The OECD said the economic impact of strict and lengthy lockdowns in Europe “will be particularly harsh.” 

It 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 United States will take a hit of 8.5% and 7.3% respectively, and Japan 7.3% and 6%.

The Covid-19 pandemic has triggered “the most severe recession in nearly a century and is causing enormous damage to people’s health, jobs and well-being” according to the OECD’s latest Economic Outlook.

“As restrictions begin to ease, the path to economic recovery remains highly uncertain and vulnerable to a second wave of infections,” said the OECD.

“The containment measures brought in by most governments were necessary to slow the spread of the virus and limit the death toll, but they have also closed down business activity in many sectors and caused widespread economic hardship …”

With little prospect of a vaccine becoming widely available this year the OECD took the unusual step of presenting two equally likely scenarios – one in which the virus is brought under control and one in which a second global outbreak hits before the end of 2020.

“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,” said the OECD.

“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.

“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.”

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 …

“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 … 

“Governments must seize this opportunity to build a fairer economy, making competition and regulation smarter, modernising taxes, government spending and social protection.

“Prosperity comes from dialogue and co-operation. This holds true at the national and global level.”

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 …

“How governments act today will 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.

“International co-operation, a weak point so far in the policy response, can create confidence and have important positive spillover effects.”

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Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.