- The OECD said COVID-19 has “triggered the most severe recession in nearly a century.”
- The organisation laid out two scenarios facing the global economy: one if a second wave of COVID-19 is avoided, and one where a second wave hits the global economy.
- World economic output will fall by 7.6% this year if a second wave happens, and 6% without a second wave, it said.
- GDP in the US will fall by 8.5% this year with a second wave, and 7.3% in the absence of a second wave.
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The COVID-19 pandemic has triggered the “most severe recession in nearly a century,” the Organisation for Economic Co-operation and Development warned on Wednesday as it released two scenarios for how the virus could develop and impact global markets.
The OECD said in Wednesday: “With little prospect of a vaccine becoming widely available this year, and faced with unprecedented uncertainty, the OECD has taken 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.”
A pair of very different scenarios
The OECD sees world economic output collapsing by 7.6% in the event of a second wave of coronavirus before the end of this year.
“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.”
But the OECD thinks global economic activity will fall to a lesser degree by -6% in 2020 if a second wave of infections is avoided.
Unemployment in the OECD – which includes 37 major economies, largely in the Western world – would rise to 9.2%, higher than 5.4% in the previous year, but still a less dire forecast than “double the rate prior to outbreaks” in the case of a second coronavirus outbreak.
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Hit to different countries’ GDP
The OECD made a number of forecasts on how GDP will pan out in different regions under both scenarios.
It said the impact of strict and relatively lengthy lockdowns in Europe will be “particularly harsh” as it noted Europe’s GDP could be worst hit by a resurgence of coronavirus cases.
The organisation is bracing for a 11.5% hit to euro area GDP if a second wave breaks out, and a 9% contraction if a second wave is avoided.
US GDP will fall 8.5% if a second wave occurs, and 7.3% if a second wave is avoided.
For Japan, GDP will fall by 7.3% in a second wave scenario and 6% in the absence of another coronavirus outbreak.
OECD said: “The 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.”
But OECD thinks China and India’s GDP will be less affected with a decrease of 3.7% and 7.3% in the case of a double hit and 2.6% and 3.7% in the case of a single hit.
The OECD said a recovery to pre-pandemic levels will take a long time under both scenarios.
“The crisis will leave long-lasting scars – a fall in living standards, high unemployment and weak investment. Job losses in the most affected sectors, such as tourism, hospitality and entertainment, will particularly hit low-skilled, young, and informal workers.”
OECD chief economist Laurence Boone said extraordinary policies will be needed “to walk the tightrope towards recovery”.
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.