According to the Organization of Economic Cooperation and Development’s (OECD) latest Interim Economic Outlook, the coronavirus (COVID-19) presents the greatest danger to the global economy since the financial crisis of 2008.
As COVID-19 moves beyond China’s borders into the rest of the world, the virus has created economic disruption with countries implementing restrictions on the movement of people, goods and services; falls in both business and consumer confidence; and slowing production.
In a release, the OECD said the outlook “presents both a best-case scenario in which the extent of the coronavirus is broadly contained and a ‘domino’ prospect of contagion that is more widespread”.
However, in both cases, the OECD appeals to governments to act swiftly to reduce the spread of the coronavirus, protect people and businesses from its effects, and boost demand in the economy.
Speaking in Paris today, OECD Chief Economist Laurence Boone said: “The virus risks giving a further blow to a global economy that was already weakened by trade and political tensions. Governments need to act immediately to contain the epidemic, support the health care system, protect people, shore up demand, and provide a financial lifeline to households and businesses that are most affected.”
The OECD argued that even in the best-case scenario in which the outbreak of the virus is limited, it predicts “a sharp slowdown in world growth” in the first half of the year.
As supply chains and the commodities market feel the brunt of the COVID-19 fallout, tourism falls and confidence weakens, the organisation forecasts that global economic growth will drop to 2.4 per cent for the entire year, compared to an already weak 2.9 per cent in 2019.
“It is then expected to rise to a modest 3.3 per cent in 2021,” the release continued.
The OECD has revised down China’s growth prospects to below 5.0 per cent this year after 6.1 per cent in 2019.
“But broader contagion across the wider Asia-Pacific region and advanced economies — as has happened in China — could cut global growth to as low as 1.5 this year, halving the OECD’s previous 2020 projection from last November. Containment measures and loss of confidence would hit production and spending and drive some countries into recession, including Japan and the euro area,” the release also said.
The Interim Economic Outlook has, however, recommended the use of flexible working in order to preserve jobs. It further encouraged governments to implement temporary tax and budgetary measures to soften the impact of the virus in sectors most affected by the downturn such as travel and tourism, and the automobile and electronic industries.
If the epidemic spreads widely, the G20 economies should lead an internationally co-ordinated framework for health care support, combined with co-ordinated fiscal and monetary stimulus to rebuild confidence, the outlook adds.