Coronavirus could push countries into recession, warns OECD

2 Mar 20

Coronavirus could push a number of nations into a recession under a worst case scenario outlined by the Organisation for Economic Co-operation and Development.

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Coronavirus

Coronavirus, image by Studio Incedo, Flickr

If the outbreak remains relavively contained, global economic growth is predicted to fall to 2.4% for the whole year, compared to 2.9 % in 2019, before rising to 3.3% in 2021, according to the OECD’s Interim Economic Outlook.

However, in the event the outbreak spreads more widely in the Asia Pacific region or major economies in the northern hemisphere, the adverse effects on global growth and trade will be much worse and more widespread than the forcasted 0.5% decrease, it said.

The OECD said, "A larger decline in growth prospects of this magnitude would lower global GDP growth to around 1.5% in 2020 and could push several economies into recession, including Japan and the euro area."

In a best-case scenario, there will be a sharp slowdown in world growth in the first half of 2020 as supply chains and commodities are hit, tourism drops and confidence falters.

OECD chief economist Laurence Boone said: “The virus risks giving a further blow to a global economy that was already weakened by trade and political tensions.

“Governments need to act immediately to contain the epidemic, support the health care system, protect people, shore up demand and provide a financial lifeline to households and businesses that are most affected.”

The study also advises governments to implement temporary tax and budgetary measures, to cushion the impact in sectors most affected by the downturn such as travel and tourism, and the automobile and electronic industries.

This comes after Italy announced a €3.6bn fund yesterday, for companies most affected by the virus, as well as tax cuts and extra funds for the health system, with more than 1,500 confirmed cases in the country.

The Bank of Japan also pledged to use “whatever instruments necessary”, including investment into the market, to ward off the effects of the virus.

The US Federal Reserve said it is also monitoring developments for risks to its economy and will intervene if necessary.

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