The OECD warned on Wednesday that the shock to the economy and living standards caused by the COVID-19 pandemic is “unprecedented and will have long-lasting effects” as it forecasts a global recession of at least 6 per cent.
Laurence Boone, chief economist for the Organisation for Economic Co-operation and Development (OECD), said that the body’s latest economic outlook is “very sobering”.
She described it as “the most uncertain and dramatic outlook since the creation of the OECD”.
The organisation, which counts 37 mostly-rich countries among its members, expects the global economic output to drop by 6 per cent this year if the pandemic remains “under control” and to shrink by 7.6 per cent if a second wave washes over the world in the coming months.
“In both scenarios, the shock to the world economy and living standard is absolutely unprecedented and it will have long-lasting effects,” Boone said, stressing that “all OECD countries are in recession and a large number of them are in a double-digit recession”.
OECD Secretary-General Angel Gurria told Euronews it would take time for confidence to return, and that “we’re looking more at a U-shaped recovery rather than a V-shaped recovery.”
“There’s a question of investment that has to recover, there’s a question of trade tensions that have to disappear. But there’s also the debt that we will be left with, and that’s governments, and that’s corporations, and that’s households. And that will make it a little harder to take off,” he said.
The OECD expects global growth to rebound in 2021 by 5.2 per cent in the case the pandemic is controlled, but by only 2.8 per cent if COVID-19 flares up again.
It praised governments for reacting “remarkably quickly to the crisis, reducing the spread of the virus and preventing an even larger economic and financial collapse” but warned that although strong fiscal support is warranted, it will have consequences.
It argued that public spending should be well-targeted to support the most vulnerable and hard-hit sectors in order to subdue rising unemployment rates.
Boone flagged that young people are particularly vulnerable to the economic impact of the pandemic, stressing: “I don’t think we can let young people be scarred for life from this crisis.”
Other recommendations include building stronger medical equipment stockpiles as well as more resilient supply chains with larger stocks and more diversification of sources.
The idea, Boone said, is to switch the approach “from just in time to just in case”.
Gurria argued that the crisis should be turned into an opportunity to tackle climate change, something he called the “single most important, intergenerational responsibility.”
“Bravo to those countries that are now saying, in the recovery, I will be supporting greener solutions, either in the car industry or in the airplane industry or in the shipping industry,” he told Euronews. “You’re combining the support of the hardest-hit sectors (…) with policies that drive you towards a better future.”
Trade should be part of the solution
Both Boone and Gurria argued that “trade is part of the solution” and not protectionism.
“Trade, more trade, even more trade to reduce trade tensions particularly between China and the US,” Gurria said, highlighting that the trade tit-for-tat between the two superpowers had already cost the global economy.
Multilateral solutions, including an agreement to ensure multinational enterprises “pay their fair share of taxes”, is also one of the tools that could be deployed to reduce “heavier debt burdens”, Gurria said.
The European Commission’s proposed €750 billion recovery fund was meanwhile praised for addressing the “divergence in economic activity due to the pandemic” between member states as it involves €500 billion to be handed out in grants.
“The advantage of this plan is that the grants do not add to the national debt,” Boone said, describing the fund as “a very strong expression of how European solidarity is actually helping”.