The OECD (Organization for Economic Co-operation and Development issued a stark warning that the coronavirus pandemic is the third-largest economic crisis of the 21st Century, following the terrorist attacks of 9/11 and the Global Financial Crisis of 2008.
The Secretary-General for the OECD, Angel Gurria, said that the uncertainty surrounding the pandemic has no boundaries as the Covid-19 virus continues to spread across the world. Governments across Europe and elsewhere have increased preventative measures, such as social distancing and closing popular facilities and establishments including gyms and restaurants, in an effort to curb the transmission from person to person. Mr. Gurria also paid particular attention to developing countries where the impact of the pandemic on global growth has reached and could reach unprecedented levels.
In a report entitled Coronavirus (COVID-19): Joint actions to win the war Mr. Gurria wrote: ‘And while it is too early to tell how far-reaching an impact COVID19 will have on many developing countries, particularly those in sub-Saharan Africa, it is clear that even if they are fortunate enough to escape the brunt of the health crisis, they will suffer economically, just as they did after the 2008 crisis. We are closely monitoring events and will be updating our analysis regularly.’
Mr. Gurria said that the toll on society is unprecedented, with the coronavirus claiming thousands of lives, it is unclear as to how long the effects of the outbreak will last. The OECD warned that many economies could fall into a recession over the coming months.
What causes an economic recession?
A recession is announced after an economy suffers two consecutive quarters of negative GDP (Gross Domestic Product).
‘Compounding a global health crisis with a major economic and financial crisis will put large strains on our societies. Even after the worst of the health crisis has passed, people will be confronted with the jobs crisis that will ensue. Well before the outbreak, the global economy already exhibited a number of underlying vulnerabilities, which now risk worsening the downturn that COVID-19 has delivered. These include the high level of corporate debt and trade tensions between major economies. Another important vulnerability are the gaps in income, wealth and job stability in many countries, which threaten a large part of our populations. More than one third of OECD households are financially insecure, meaning they would fall into poverty if they had to forgo three months of their income. As for the trade restrictions that have proliferated in the last few years, these may not only affect badly needed medical supplies in some settings but also generate supply-chain disruptions in food or other essential goods and services. More broadly, they increase the risk of a more severe outbreak, as well as of a deeper and longer-lasting recession.’
To read the full report by the OECD, click here.
The OECD has compared the scale of the impact of the coronavirus to that of 9/11 and the 2008 financial crisis.
The OECD called for a joint effort to combat the impact of the virus outbreak; in the UK for example Boris Johnson’s government has unveiled plans to pay the income for people put out of work due to the virus.
With more and more governments and central banks borrowing more money to combat the economic disruptions, economists are raising the question of what effect larger deficits and government debts will have on the future outlook for global growth.
The OECD has proposed the following set of measures to help manage the pandemic:
- Governments should come together to develop a vaccine and provide medical treatment for those suffering from the virus. ‘Had a vaccine for the SARS-CoV-1 been developed at the time, it would have accelerated the development of one for the current outbreak given that the two viruses are 80% similar. Today, regulatory agencies (the FDA in the US, the European EMA, among others) should work together to remove regulatory hurdles for vaccines and treatments.’
- Governments need to increase spending on key areas such as research, health care, businesses, and employees.
- Central Banks need to start working together to cushion the coronavirus impact, especially on the financial markets that are struggling under the pressure.
- Rebuilding trust and confidence is crucial. While the main propriety is to cut the rapid spread of the virus, rebuilding a strong sense of confidence amongst the business community is extremely important if long-term negative economic repercussions are to be avoided.
Global growth was already showing signs of fatigue before the outbreak, with the uncertainty surrounding Brexit and the trade war between China and the US.
‘In our global world, many issues cannot be dealt with anymore within domestic boundaries, be it a virus, trade, migration, environmental damages or terrorism. Multilateral action creates positive spillovers that will be more effective for each country than if they acted alone,’ said Mr. Gurria.