- The world economy is collapsing by 4.5% this year despite a rapid recovery from the COVID-19 pandemic, according to the Organization for Economic Co-operation and Development.
- The OECD’s recent economic outlook is less negative than expected, but the organization said 2020 will still mark the worst decline in growth since World War II.
- China, the United States and Europe are likely to do better than expected, while many countries are still fighting the virus.
- “Without continued government support, bankruptcies and unemployment could rise faster than justified and take a toll on people̵
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The global economy is facing the prospect of the most dramatic collapse this year since World War II as the coronavirus pandemic rages through the world population, the Organization for Economic Co-operation and Development said on Wednesday.
In its latest economic outlook on Wednesday, the OECD said the world economy will contract by 4.5% this year, an improvement from its latest forecast of 7.6% in the event of another coronavirus wave.
Some of the world’s powerhouses in the new market, such as India and Mexico, could see a double-digit decline in their economies, it said.
“The world is facing an acute health crisis and the most dramatic economic downturn since World War II. The end is not yet in sight,” said Laurence Boone, OECD chief economist.
Production will grow by 5% by 2021, the report says, but the outlook remains “unusually uncertain” due to a number of factors.
Factors include “the likelihood of new outbreaks of the virus, how well individuals observe health measures and restrictions, consumer and business confidence, and the extent to which government support to maintain jobs and help businesses increase demand,” the OECD said in its report.
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While the expected decline in global production is smaller than originally assumed, it does not reflect the true extent of destruction in several countries due to “significant differences” between them.
China, the United States and Europe are expected to perform better than expected. On the other hand, the growth forecasts for India, Mexico, South Africa, Argentina and the UK have deteriorated as all are expected to collapse by over 10%.
The crucial business sectors most affected by shutdowns such as transport, entertainment and leisure could face shutdowns and extensive job losses if demand does not recover quickly, the report said. This could be particularly brutal in emerging market economies, where rising unemployment could directly lead to poverty and shortages for millions.
Central banks and governments in rich and developed countries have released an unprecedented wave of trillions of dollars in fiscal and economic stimulus to ward off the worst effects of the pandemic.
“It is important that governments avoid the mistake of tightening fiscal policy too quickly, as happened after the last financial crisis,” Boone said. “Without continued state support, bankruptcy and unemployment could rise faster than justified and take a toll on people’s livelihoods for years to come.”
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