The Covid pandemic is on track to cause the worst recession outside of wartime in hundred years, the Organization for Economic Cooperation and Development warned on Wednesday.
The strict lockdowns and travel restrictions imposed by countries around the world have led to a steep decline in business activity. Global supply chains have been halted, inequality and debt levels have soared, and confidence levels have fallen.
“Economic impacts are dire everywhere,” the OECD summarized in its Economic Outlook, published Wednesday. “The recovery will be slow and the crisis will have long-lasting effects, disproportionately affecting the most vulnerable people.” The OECD published two forecasts for global growth: the first assuming there is a second wave of Covid-19 infections; the second assuming a second wave is avoided.
In its first scenario, the OECD said global growth will contract by 7.6% in 2020, and “remain well short” of its pre-crisis level by the end of next year. If there is no second wave, the OECD said the world economy will still contract by 6% in 2020, but will recover to almost pre-crisis levels by the end of 2021.
“Both scenarios are sobering, as economic activity does not and cannot return to normal under these circumstances,” the OECD said. It added that “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.”
France, the United Kingdom, Spain and Italy are expected to face the sharpest economic contractions this year. These countries are among those worst-hit by the health crisis so far. The OECD also warned about the impact of the pandemic on young people. Those aged between 15 and 24 represent the biggest share of workers in the hardest-hit sectors, such as tourism.
“Unemployment in the median OECD economy this year is projected to be at the highest level for twenty-five years, and ease only slowly in 2021,” it warned. “The scarring effects from job losses are likely to be felt particularly by younger workers and lower-skilled workers, with attendant risks of many people becoming trapped in joblessness for an extended period.”
Furthermore, emerging economies are also expected to be badly hit. Countries such as Brazil and Argentina rely on demand from advanced countries, which are also struggling.