OECD warns of long, hard road ahead for global economy

The OECD said today that the economic fallout from the Covid-19 pandemic will be long and harsh, regardless of whether or not the pandemic strengthens again later in the year.

Citing "unprecedented uncertainty", the group in its Economic Outlook presented two scenarios for 2020. One in which the coronavirus is brought under control, and one in which there is a second global outbreak before the end of the year. Both show an extreme global economic contraction and a huge number of unemployed people that will, by extension, probably lower demand for commodities.

Should a second outbreak lead to renewed lockdown measures, the global economy will contract by 7.6pc this year, with unemployment in OECD countries peaking at more than double the rate prior to the pandemic. Even in the absence of a second wave, the global economy will shrink by 6pc. In both cases, it will take more than two years to return to pre-pandemic levels, it said.

"In both scenarios, the recovery, after an initial, rapid resumption of activity, will take a long time to bring output back to pre-pandemic levels, and the crisis will leave long-lasting scars — a fall in living standards, high unemployment and weak investment," the OECD said. "The crisis will cast a long shadow over the world."

Europe will bear the brunt of the economic pain. The OECD forecasts double-digit contractions in the economies of Spain, France and Italy however the pandemic develops. It said the eurozone's gross domestic product (GDP) will fall by 11.5pc this year if a second wave breaks out, and by more than 9pc otherwise. US GDP will fall by 8.5pc with a second wave and by 7.3pc without, while Japan's economy will contract by 7.3pc and by 6pc under those respective scenarios.

It said emerging economies like Brazil, Russia and South Africa face a double hit from strained health systems and falling commodity prices. Their economies will contract by 9.1pc, 10pc and 8.2pc respectively in the double-hit scenario, and by 7.4pc, 8pc and 7.5pc in the other scenario. Key oil importers China and India will be relatively less affected, with a falls of 3.7pc and 7.3pc respectively if the pandemic rises again and fall of 2.6pc and 3.7pc if it does not.

The OECD's monthly composite leading indicators (CLI) survey, also released today, shows a third month of sharp slowdowns in almost all regions with the exceptions of China, where there are tentative signs of a recovery, and India where the growth cycle is merely slowing. The CLI survey is designed to anticipate turning points in economic activity relative to trend 6-9 months ahead.

By Ben Winkley