The global economy will contract at least six percent this year, with an unprecedented loss of income and "extraordinary uncertainty" caused by measures to contain the coronavirus outbreak taking a heavy toll, the Organisation for Economic Co-operation and Development (OECD) said Wednesday.
In the event of a second wave of contagion later in the year, economic output could even shrink by as much as 7.6 percent, it warned. In both scenarios, recovery will be "slow and uncertain."
Argentina deserved special mention in the report for handling a health policy response that managed to slow the spread of the virus. But structural problems and the country’s struggle to restructure US$65 billion in foreign debt make it more vulnerable to a deeper recession, according to the OECD.
Specifically, addressing Argentina, the OECD predicted that Argentina's economy would decline by 8.3 percent without a second wave, with 10.1 percent offered as the worst-case scenario.
The impact is likely be milder in Brazil, with a contraction of 7.4 percent anticipated and a 9.1 percent expected should a second wave arrive. For Mexico, estimates were similar, with slumps of 7,.5 percent and 8.6 percent in GDP predicted for the two scenarios.
"The choice between health and the economy is a false dilemma. If the pandemic is not controlled, there will be no robust economic recovery," OECD Secretary General Mexican Ángel Gurría warned by videoconference.
GDP growth should resume in 2021, by 5.2 percent if the virus is contained, and 2.8 percent if there is another infection wave, the OECD said in its latest outlook, entitled World Economy on a Tightrope.
It warned that by the end of next year, "the loss of income exceeds that of any previous recession over the last 100 years outside wartime, with dire and long-lasting consequences for people, firms and governments."
As unemployment rises, private debt levels in some countries are "uncomfortably high," said the report, "and business failure and bankruptcy risks loom large."
Back in March – when the outbreak had hit China but not yet the world's other large economies – the OECD had slashed its global growth forecast by half a percentage point to 2.4 percent, which would have already been the worst performance since the 2008 financial crisis.
Things have since gotten much worse, with commerce and travel shut down as governments scrambled to rein in the pandemic by keeping people at home. Economic activity in the OECD's 37 developed member countries has collapsed, the report said, by as much as 20 or 30 percent in some cases in what it called "an extraordinary shock".
In the latest example of trouble, France estimates that 800,000 jobs will be lost in the coming months, or 2.8 per cent of the country's total employment, Finance Minister Bruno Le Maire told a parliamentary finance committee on Wednesday.
As long as there is no vaccine or treatment against the coronavirus, physical distancing to prevent contagion, testing people for the virus, and tracing and isolating those infected will remain key to fighting the pandemic. But sectors affected by border closures and those requiring close personal contact, such as tourism, travel, entertainment, restaurants and accommodation, "will not resume as before", said the OECD.
"Global cooperation to tackle the virus with a treatment and vaccine and a broader resumption of multilateral dialogue will be key for reducing doubt and unlocking economic momentum," the OECD said.
Fairer economy needed
Governments and central banks have taken extraordinary steps to protect businesses and employees from the outbreak's economic fallout. But this too has consequences, said the report, with gross public debt rising fast.
"Governments can provide the safety nets that allow people and firms to adjust, but cannot uphold private sector activity employment and wages for a prolonged period."
Agathe Demarais, global forecasting director at The Economist Intelligence Unit, said about the report: "The OECD's predictions highlight the fact that the global economy will sink into a deep recession this year, from which it will start to emerge only in 2022 at best".
Governments will need to adjust support, allowing fast restructuring processes for firms, providing income for workers between jobs, training for those laid off, and social protection for the most vulnerable, said the OECD.
The economic downturn has exacerbated inequality between workers, it added, with those able to work from home generally highly qualified, while many younger and less qualified people unable to work -- or simply laid off.
The hardship was further compounded by unequal access to social protection.
"Governments must seize this opportunity to engineer a fairer and more sustainable economy, making competition and regulation smarter, modernising government taxes, spending and social protection," the OECD said.