Extraordinary action required to aid coronavirus recovery – OECD

The world economy is on a tightrope and extraordinary action is necessary to help recover from the impacts of the coronavirus pandemic, the Organization for Economic Cooperation and Development warns.

The OECD's latest economic outlook, published Wednesday, said the COVID-19 pandemic "has triggered the most severe economic recession in nearly a century and is causing enormous damage to people's health, jobs and well-being."

The outlook considers two equally probably scenarios. The first focuses on a second wave of COVID-19 infections before the end of 2020, leading to renewed lockdowns, while the second looks at a scenario in which another major outbreak is avoided. These two scenarios were considered since there is "little prospect of a vaccine becoming widely available this year," the OECD said.

"Extraordinary policies will be needed to walk the tightrope towards recovery," Laurence Boone, chief economist at the OECD, said in a statement accompanying the report. "Restarting economic activity while avoiding a second outbreak requires flexible and agile policymaking."

Governments need to "seize this opportunity to build a fairer economy, making competition and regulation smarter, modernizing taxes, government spending and social protection," Ms. Boone added. "Prosperity comes from dialogue and co-operation. This holds true at the national and global level."

The OECD said stronger international cooperation is needed to help end the pandemic more quickly and to speed up the world's economic recovery. Governments can invest in health, including using test and trace measures; maintain liquidity support in economies; keep interest rates low; and ensure public spending and taxation policies support an economic recovery.

Under the first scenario, world economic output is forecast to drop 7.6% this year and then climbing 2.8% in 2021. Unemployment would be more than double the rate prior to the outbreaks at its peak, with little recovery in jobs next year.

The economic impact of strict and relatively long lockdowns in Europe "will be particularly harsh," with eurozone GDP expected to fall by 11.5% if a second wave of infections occur. GDP in the U.S. would drop 8.5% and in Japan, GDP would be expected to fall 7.3%.

Emerging markets face the additional challenge of strained health-care systems and the collapse in commodity prices. Economies such as Brazil, Russia and South Africa would be expected to take hits of 9.1%, 10% and 8.2%, respectively, were a second wave of infections to occur. China and India would be less affected, falling 3.7% and 7.3%, respectively, under the scenario.

Even if a second wave of infections is avoided, the economic hit will still be hard. Eurozone GDP is forecast to fall by over 9%, U.S. GDP would drop 7.3% and Japan's economy would take a 6% hit.

Brazil, Russia and South Africa GDP would fall 7.4%, 8% and 7.5%, respectively, according to the OECD's forecast, while China would drop 2.6% and India 3.7% if a further wave of infections is avoided.

Whichever scenario occurs, the recovery will see an "initial, rapid resumption of activity," but it will then take a long time for output to return to pre-pandemic levels. The crisis will also leave "long-lasting scars," including a fall in living standards, high unemployment and weak investment, the report warned.