On Monday, the Organisation for Economic Cooperation and Development (OECD) warned that the coronavirus outbreak is plunging the world economy into its worst downturn since the 2008 financial crisis and urged governments and central banks to take action to avoid a prolonged and damaging slump.
The global economy is set to grow only 2.4% this year, the lowest rate since 2009 and down from a forecast of 2.9% last November, the OECD said in an update of its outlook. The Paris-based policy organization projected that the global economy could recover to 3.3% growth in 2021, assuming the coronavirus has now peaked in China and other outbreaks prove to be mild and quickly contained.
However, if the virus spreads throughout Asia, Europe and North America, global growth could drop as low as 1.5% this year, the OECD warned. It called on governments to support healthcare systems with extra pay or tax relief for workers doing overtime and shor-time working schemes for companies struggling with a slump in demand.
Governments should also give companies further financial relief by cutting social charges, suspending value-added taxes and providing emergency loans for sectors particularly hard, such as travel, said the OECD. Central banks could provide comfort signals to stressed financial markets that they stand ready to further ease monetary policy and provide liquidity to banks if needed.
If the coronavirus worsens, a coordinated response of central bank easing and fiscal stimulus amounting to 0.5% of economic output in G20 countries could lead to 1.2% higher growth within two years, the OECD calculated in its latest update to the global economic outlook.
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