The Organization for Economic Cooperation and Development has caused an economic stir as it on Wednesday predicted global economy would contract by 6% this year before boomeranging back with 5.2% growth in 2021, provided the outbreak is kept under control.
It said that,
“Even in countries where containment measures have been relatively light, early data are already making clear that the economic and social costs of the pandemic will be large…given this uncertainty, two scenarios have been developed to reflect the possible evolution of the global economy”.
The OECD outlook’s probable scenarios includes one in which a second wave of infections, with renewed lock-downs, hits before the end of 2020, and one in which another major outbreak is avoided. It posits that a second wave of contagion this year could see the global economy contract by 7.6% before rising steadily to 2.8% next year.
According to OECD chief economist Laurence Boone, in an introduction to the refreshed outlook, "By the end of 2021, 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."
With crisis responses set to shape economic and social prospects for the coming decade, she urged governments not to shy away from debt-financed spending to support low-paid workers and investment. She said,
"Ultra-accommodative monetary policies and higher public debt are necessary and will be accepted as long as economic activity and inflation are depressed, and unemployment is high”.
Countries on the recession hit list
In about five years or more, the Paris-based organization says income growth could be lost in many countries as a result of the pandemic. By virtue of this, some world leading countries such as the United States and United Kingdom stands the bleak chance of recession on the horizon.
OECD suggests that the US economy, the world's biggest, is seen contracting 7.3 percent this year before growing 4.1 percent next year and that in the event of a second wave of infection the US recession would reach 8.5 percent this year, and the economy would grow only 1.9 percent in 2021.
Similarly, the United Kingdom is expected to see the worst downturn among the countries covered by the OECD, with its economy forecast to contract 11.5% this year before recovering 9.0 percent next year. A second outbreak could trigger a slump of 14.0% this year followed by a rebound of 5.0 percent next year, the OECD said.
Germany also isn’t out of the woods yet as it has been advised by OECD senior economist Isabell Koske to make provisions to ensure that banks are solvent enough to avert bankruptcy waves.
"The German corporate sector is very heavily financed through bank loan, Banks are therefore at greater risk of not seeing their loans again in the event of a wave of bankruptcies."