Virus impact: OECD warns of plunging global growth

Reuters Paril | Updated on March 02, 2020

Asks govts, central banks to take steps to soften the blow

The coronavirus outbreak is plunging the world economy into its worst downturn since the global financial crisis, the Organisation for Economic Cooperation and Development (OECD) warned on Monday, urging governments and central banks to fight back to avoid an even steeper slump.

The global economy is set to grow only 2.4 per cent this year, the lowest since 2009 and down from a forecast of 2.9 per cent in November, the OECD said in an update of its outlook.

The Paris-based policy forum projected the global economy could recover to 3.3 per cent growth in 2021, assuming the epidemic peaked in China in the first quarter of this year and other outbreaks proved mild and contained.

However, if the virus spreads throughout Asia, Europe and North America, global growth could drop as low as 1.5 per cent this year, the OECD warned.

“The main message from this downside scenario is that it would put many countries into a recession, which is why we are urging measures to be taken in the affected areas as quickly as possible,” OECD chief economist Laurence Boone told Reuters.

She said governments needed to support health systems with extra pay or tax relief for workers doing overtime and short-time working schemes for companies struggling with a slump in demand.

Governments could give companies further financial relief by cutting social charges, suspending value-added taxes and providing emergency loans for sectors such as travel, Boone said.

In a nod to some European countries like fiscally conservative Germany, she said governments should not fuss over spending caps while letting programmes like unemployment insurance do their job of softening the blow from the downturn.

Meanwhile, central banks could provide comforting signals to stressed financial markets that they stand ready to further ease monetary policy and provide liquidity to banks if needed.

“We don't want to add a financial crisis to the health crisis,” Boone said.

If the situation deteriorates, a coordinated response of central bank easing and fiscal stimulus amounting to 0.5 per cent of economic output in G20 countries could lead to 1.2 per cent higher growth within two years, the OECD calculated.

“A G20 coordinated health, fiscal and monetary policy response would not only send a strong confidence message but also multiply the effect of national actions,” Boone said.

Published on March 02, 2020

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